You might think there’s no song left to sing in praise of education tax credits. I’ve already argued that credits are more popular with the public, more legally viable, and supported by a bigger coalition. But there are other issues to consider.
Which of the two options for real school‐choice reform is more likely to survive and expand after it’s passed: vouchers or education tax credits?
Education tax credits do the most to encourage the quick development of a powerful and organized constituency.
I should probably review what exactly the difference is between vouchers and tax credits before we move on to the details of why these difference matter. Vouchers are government checks that the state sends parents to use at schools of their choosing. Tax credits reduce the amount a taxpayer owes the government for each dollar he spends on his child’s education or scholarships for children who need them. If a business owed the state $4,000 in taxes and donated $2,000 for scholarships, for instance, it would pay just $2,000 in taxes — and it would get to choose the organization that received its donation. Similar benefits can also be applied to individuals for donations and for their own child’s education expenses.
Because individual taxpayers can spend tax credits at schools and organizations of their choosing, the credits give them a stake in those schools and organizations. A woman who takes advantage of a tax credit benefits, directly and personally, from the policy by supporting her own child’s education. And if it’s a donation tax credit, she benefits directly because she can fund a needy child or educational mission of her choice. In a similar fashion, businesses that claim tax credits on donations directly benefit from and have a direct stake in the law, with the added attraction of building community good‐will.
Perhaps the most important post‐passage effect of tax credits compared with vouchers is that the former create a new and permanent institutional support system for the choice program. The scholarship organizations that arise to administer the donation tax credit are a new and powerful block of political interests that do not exist under a voucher program, and they have proven effective advocates for the defense and expansion of choice programs in Arizona and Pennsylvania.
These organizations can quickly disseminate information to and mobilize parents, businesses, and schools, and they have the funds and financial interests to do so. The personal investment that tax credits establish means that individuals, businesses, and scholarship organizations — everyone who participates in the program — will have a strong and direct interest in defending and expanding the law. With a voucher system it is the government that decides how and where to allocate funds rather than individual taxpayers and businesses; vouchers are government checks sent directly to parents. Vouchers do not create the kind of community‐wide, direct, and personal investment in school choice that tax credits do because, unlike credits, vouchers give taxpayers no say in the program and no direct benefits from it.
In Pennsylvania, for instance, businesses can get a tax credit for money they donate to scholarship organizations that help low‐income children pay for a good education. The scholarship organizations that receive the donation tax‐credit money have become an institutional base for supporters and beneficiaries, and a mobilized political force. Andrew LeFevre, executive director of the REACH Alliance, a Pennsylvania school‐choice organization founded in 1991, describes the role of his group and that of the Scholarship Organizations in their state:
Upon passage of the EITC (Educational Improvement Tax Credit) program in 2001, REACH made a strategic decision to work on helping to set up a scholarship organization (SO) in as many of the 67 counties as possible in order to begin the process of connecting the people involved with the program — most importantly the parents and children — with their elected officials. As we enter the 2007-08 school year, there are now approximately 180 SOs (as well as over 300 EIOs [Educational Improvement Organizations that fund special programs in public schools] and 80 Pre‐K SOs) that have been created all across the Commonwealth. These groups serve as a vital link between the families that they serve and the legislators that have been responsible for more than doubling the program cap over the past six years.
REACH works with the participating SOs to help them better understand the importance of maintaining that personal relationship with their elected officials and the media to show the tremendous positive impact that the program has on children and families in their local districts. Many SOs now require their families who receive scholarships to write to their elected officials to thank them for their support of the program; generating thousands of letters a year to Harrisburg on behalf of the EITC program.
A similar dynamic has helped to solidify and expand school‐choice policy in Arizona. Politicians, civic leaders, churches and other influential community institutions have become invested in the program and are eager for its expansion. A former executive director of a major Arizona school‐choice organization calls Scholarship Tuition Organizations “the critical constituency that protects the program.”
Scholarship organizations are funded through the program they mobilize constituents to defend. So tax credits, in other words, create groups with a direct interest in defending and expanding them.
The Florida credit program, in contrast to those in Arizona and Pennsylvania, has produced relatively few scholarship organizations because they are required to disburse 100 percent of the funds donated them in the form of scholarships, which means that they must raise money for operating costs outside the credits system. Arizona allows the organizations to keep up to 10 percent and Pennsylvania sets the limit at 20 percent, which ensured that relatively powerful institutions sprang up quickly.
Voucher programs do not create these institutions, and thereby their beneficiaries have difficulty overcoming collective action barriers to organize and defense school choice. This disadvantage is, of course, compounded in the case of voucher programs targeting low‐income families, who have few resources with which to mobilize in any case.
Tax credits establish a self‐implementing form of school choice that relies on the private‐sector alone. Voucher laws must establish a new government apparatus to implement school choice or rely on a state education system that is generally hostile to school choice. Regardless of the procedure, the need for implementation by the state will increase costs and complicate implementation significantly. It will also establish an additional venue for undermining school choice and an additional issue — the administrative costs to the state — on which to attack the policy. Tax credits are easier to implement and more certain in their translation from proposal to practice because they require minimal participation from intervening government agencies to execute the legislation.
School‐choice supporters need to remember that the battle doesn’t end when you win in the legislature. Education tax credits build the most powerful political constituency, and that’s what ensures that a choice program survives and grows.