School Choice’s Ace in the Hole

This article appeared in the March 2008 issue of USA Today Magazine.

School Choice is becoming the mostpopular education reform idea, but not allschool choice is created equal. The mostpowerful kinds allow parents to choose anyschool—public, independent, or religious. Most ofthe time, vouchers are what people think of when weare talking about this type of full‐​fledged choice. Yet,there is another policy that increasingly has beensuccessful in recent years: education tax credits.

Vouchers essentially are checks that the state sendsparents to use at schools that the government deemsare voucher‐​worthy. Tax credits, though, reduce theamount a taxpayer owes the government for eachdollar he or she spends on a child’s education. Moreover,tax credits for donations to scholarship organizationscan help support school choice for lower‐​incomefamilies, and personal‐​use credits can help middle‐​class families. For instance, if a business owes thestate $4,000 and donates $4,000 to a scholarshipgrantingorganization, it would pay nothing in taxes.Similar benefits for donations can be applied to individuals.

Three states have modest forms of personal‐​usetax credits: Illinois allows families to claim creditsworth 25% of their educational expenses, up to$2,500; Iowa allows 25%, up to $1,000; and Minnesotaallows 75% of nontuition expenses, up to amaximum credit of $1,000 per child. Five states—Arizona, Florida, Iowa, Pennsylvania, and Rhode Island—have more powerful donation credits. Pennsylvaniaallows a 90% credit for donations and Florida a100% credit, helping thousands of children from lower‐​income families attend good, independent schools.

Education tax credits are a more powerful and bipartisan“third way” school choice reform thatpromises to spread educational freedom across thecountry. They are the future of school choice for fivereasons:

Education tax credits are more popular thanvouchers. Surveys generally demonstrate that taxcredits command five to 10% more support than dovouchers. A large academic poll conducted for themagazine Education Next and the Program on EducationPolicy and Governance at Harvard Universityillustrates the remarkable wide support for tax credits.Even current and former public school employees favorthem by a margin of nearly two to one; publicschool employees oppose vouchers by a two‐​pointmargin.

Vouchers and tax credits fund school choice, butthere are big differences between them. Only creditslet taxpayers control their own money—they get tospend it directly on a child’s education or donate it toa scholarship fund. In a voucher program, taxpayerssend their money to the government and it decideshow to spend the funds. The Education Next-Harvardsurvey showed, in fact, that tax credits are more popularwith the general public, with 53% supportingthem and 45% favoring vouchers. Moreover, there ismuch more opposition to vouchers, with 34% opposingthem and 25% against credits. Some say tax creditsare more popular because teachers’ unions havespent so much time and money attacking vouchers,but this poll did not even use the word “voucher.” Instead,it referred only to “government funds” in thequestion.

One possible reason for the popularity of credits isthat tax benefits are a common and popular policy vehicle,and most Americans have had good experienceswith them. For instance, the HOPE Scholarshiptax credit (which gives taxpayers credits on a portionof college expenses), child tax credits, and homemortgage deductions are recognized widely and remainpopular tax breaks among middle‐​class voters;these kinds of policies often get more than 70% or80% support.

Some critics have lamented the proliferation ofspecial interest tax credits and deductions, but theseare proliferating for a reason. Tax credits are a popularand relatively easy way to provide benefits forparticular types of activities. Credits for educationexpenses have the same advantages and, unlike anumber of other tax benefits, are amply justified improvementson a tax‐​funded government educationmonopoly. Education tax credits command the popularsupport necessary to expand school choice significantly.

Vouchers court legal trouble where tax creditsdo not. Tax credits are more legally viable thanvouchers because they are private funds and vouchersare government funds. State courts repeatedly haveruled that vouchers are government funds, and the disbursementof government funds to religious schoolsexpressly is prohibited in most states by anti-Catholic“Blaine” amendments dating back to the turn of the20th century. Many states also have “compelled support“clauses, which accomplish the same resultthrough different language. Because the elimination ofreligious schools from choice programs excludesaround 90% of current private schools, this rendersany such program largely ineffectual.

Religious clauses are the highest‐​profile threats tovoucher programs, but vouchers are vulnerable tomany other constitutional provisions as well. Recentvoucher defeats were based upon seemingly innocuouseducation clauses common in state con​sti​tu​tions​.In Colorado, vouchers were brought down in 2004 bya clause mandating local control over local revenueand, in Florida, they were overturned in 2006 basedon a clause enforcing a “uniform” system of education.Neither of these rulings had anything to do withreligion, but rested on the fact that vouchers are consideredgovernment funds.

In 2002, Frank Kemerer, regents professor ofteacher education and administration at the Universityof North Texas, reviewed each state’s case law andjudicial climate in order to characterize the likely orientationof the courts if a voucher law were to bechallenged. He concluded that 17 states have a restrictiveorientation toward vouchers; 19, a permissiveorientation; and 14, an uncertain orientation. Sofar, voucher laws have been ruled unconstitutional intwo out of the four states in which they have beenchallenged: Colorado and Florida. (These cases concludedafter Kemerer’s paper, which listed them as“uncertain,” was published.)

The Institute for Justice, a libertarian public interestlaw firm that has defended many school choiceprograms in court, comes to a similar, if more optimistic,conclusion in a comprehensive study of stateconstitutions and legal precedent. IJ recommends thattax credits, but not vouchers, be pursued in 32% ofstates and that either credits or vouchers be pursuedin most of the rest. This analysis likely underestimatesthe legal difficulties vouchers face in stateseven without restrictive Blaine or “compelled support” amendment precedent. The plight ofFlorida and Colorado’s voucher laws showsthat courts disposed against vouchers can findcreative ways to overturn them, relying upontheir status as government funds and myriadother constitutional provisions.

The general legal difficulties that vouchersface, in other words, significantly can dampenpolitical and legislative support relative to taxcredits. Politicians and other political actorsconsider the disposition of the courts and aremuch less likely to fight for and pass legislationthat has a high probability of being voidedby the courts.

States with particularly restrictive clausesand precedents may face unanticipated difficultieseven with conservative courts. Liberalcourts are disposed to discover something instate constitutions that will disqualify the law,regardless of whether the constitution prohibitsvouchers according to a strict constructionistreading, but conservative courts that may befriendlier to school choice also will adheremore closely to a strict reading of the letter andintent of the constitution. If a state constitutioncontains language meant to stop governmentfunds from going to religious or private institutionsfor education, conservative judges mayfeel constrained to rule against vouchers eventhough the funds go first to families rather thanthe religious organizations.

Because education tax credits are taxpayerfunds rather than government dollars, they attenuateor avoid many legal difficulties and therecord of court challenges proves the point.The courts never have overturned modern educationtax credits or deductions—these policieshave been upheld explicitly in all state andFederal legal challenges. School choice opponentshave thrown everything at education taxcredits, to no avail.

People working on the school choice issuealso agree that tax credits are more legally viablethan vouchers. In 2006, the MackinacCenter for Public Policy published the resultsof a survey of organizations working on schoolchoice that I conducted; it found that 67% ofrespondents think vouchers are more likely tobe challenged in court, compared to just threepercent who chose tax credits—and, by a marginof 53 points, respondents also thought thattax credits were more likely to survive a courtchallenge.

Even opponents of school choice agree thattax credits are more viable than vouchers.Marc Egan, director of the Voucher StrategyCenter for the National School Boards Association,has written extensively on the best strategyfor defeating school choice efforts. The NSBAis as committed in its opposition to schoolchoice as is the National Education Association.Egan describes vouchers as “cash governmentpayments,” but agrees that education taxcredits are “technically not government dollars.“This leader in antischool choice strategydescribes tax credits as “bullet‐​proof on constitutionalissues” because they have survivedevery legal challenge to date. People on bothsides of the school choice issue, and the actualrecord in court, agree that tax credits are themost likely to put legal fears and problems torest.

Tax credits are less likely to be challengedand overturned by state courts. It is difficultenough to convince legislators to stand up tothe government education industry and supportschool choice without them worrying that thelaw will be found unconstitutional. Educationtax credits come with little of the legal baggageunder which vouchers currently strain.

Education tax credits have the support ofa bigger coalition; they are the school choice“third way.” Tax credits command supportfrom a larger coalition of conservatives, freemarket advocates, and private schools than dovouchers, in large part for the same reason theyare more legally viable: they are not governmentfunds and pose less danger to the autonomyof private schools that accept them. This legalissue has major implications for the schoolchoice coalition. Many social conservativesand libertarians, as well as private school,home school, and religious organizations thatoppose or only weakly support vouchers prefereducation tax credits.

Vouchers bring regulation

The Home School Legal Defense Associationpublished an issue paper in 2002, “ReasonsHome Schoolers Should Avoid GovernmentVouchers,” but it actively supports educationtax credits. Likewise, many religious conservativesare more supportive of tax creditsthan they are of vouchers. Maureen Wiebe,legislative representative for the American Associationof Christian Schools, says her organizationis uncomfortable with vouchers as a vehiclefor school choice, but wholeheartedlysupports education tax credits. These and otherorganizations fear that vouchers, as generalrevenue from government coffers, will bringincreased regulation and control of private education.

Together, home‐​school supporters and socialconservatives are a well‐​organized politicalconstituency with a proven track record ofgrassroots mobilization. Emphasizing vouchersdeals a major blow to school choice because italienates the movement’s most powerful naturalallies.

The concern with government funds bringinggovernment control is not exclusive to religiousconservatives. The National Associationof Independent Schools, the largest associationfor nonreligiously affiliated private schools,does not take an official position on many policies,leaving statements on more controversialissues to its autonomous member schools.However, Amy Sechler, NAIS director of legislativeaffairs, says her association recognizesthat vouchers often bring more challenges toprivate school autonomy than do tax credits. A2006 poll of leaders in the school choice movement,conducted by myself and the MackinacCenter, showed that they prefer tax credits aswell; although still low, their opposition tovouchers is more than double their oppositionto tax credits.

Furthermore, there seems to be more supportand less opposition to tax credits amongDemocratic political leaders. Arizona, RhodeIsland, and Iowa passed tax‐​credit initiativeslast year, and Pennsylvania expanded its existingbusiness tax credit program. The Arizona,Iowa, and Pennsylvania bills became law underDemocratic governors, and the Rhode Islandbusiness‐​tax credit was born in a legislaturecontrolled by Democrats. In New Jersey, astrong center‐​left coalition, including manyprominent African‐​American Democrats—most notably, Newark Mayor Cory Booker—supports tax credits. Finally, in deep‐​blue NewYork, Democratic Gov. Eliot Spitzer proposedan education tax deduction in his first statebudget, but he is not in favor of vouchers forschool choice. Most voucher foes are againsttax credits as well, but there are signs that somepolitical opposition to tax credits is weakening,whereas opposition to vouchers remains relativelysolid.

School choice battles incite bitter resistancefrom one of the largest, most politically potentand well‐​financed set of economic interests inthe nation: public school employee unions.Even if they disagree with the general assessmentof the danger that vouchers pose to privateschools, school choice supporters need themost powerful coalition they can muster topass and defend school choice legislation. Indeed,coalitional support is perhaps even moreimportant than popular support when dealingwith such a divisive issue, particularly whenthe public knows so little about it.

The vast majority of political and ideologicalsupport for school choice resides on theright side of the political spectrum, and the vastmajority of opposition comes from the left.When elite opinion on an issue is polarizedalong ideological lines, mass opinion tends tomove along similar lines. While that is not surprising,it often is overlooked by school choicesupporters; as school choice becomes a live issuein a state, liberal elites tend to drive up liberaland Democratic opposition to schoolchoice and conservative leadership drums upconservative and Republican support. Voucherlegislation, however, enervates and eliminateslarge, politically active blocks of the privateschool, home school, and general conservativeconstituencies. Education tax credits unify thelargest possible coalition while inspiring nomore resistance—and possibly less—thanvouchers.

Education tax credit programs are self‐​reinforcing.Education tax credits do the most toencourage the quick development of a powerfuland organized constituency. Because individualtaxpayers can spend tax credits atschools and organizations of their choosing, thecredits give them a stake in those schools andorganizations. A woman who takes advantageof a tax credit benefits, directly and personally,from the policy by supporting her own child’seducation—and if it is a donation tax credit,she benefits directly because she can fund aneedy child or educational mission of herchoice. In a similar fashion, businesses thatclaim tax credits on donations directly benefitfrom—and have a direct stake in—the law,with the added attraction of building communitygoodwill.

Perhaps the most important post‐​passage effectof tax credits compared with vouchers isthat the former create a new and permanent institutionalsupport system for the choice program.The scholarship organizations that ariseto administer the donation tax credit are a newand powerful block of political interests that donot exist under a voucher program, and theyhave proven effective advocates for the defenseand expansion of choice programs in Arizonaand Pennsylvania.

These organizations quickly can disseminateinformation to—and mobilize—parents,businesses, and schools, and they have thefunds and financial interests to do so. The personalinvestment that tax credits establishmeans that individuals, businesses, and scholarshiporganizations—everyone who participatesin the program—will have a strong anddirect interest in defending and expanding thelaw. Vouchers do not create the kind of community‐​wide, direct, and personal investmentin school choice that tax credits do because,unlike credits, vouchers give taxpayers no sayin the program and no direct benefits from it.

In Pennsylvania, for instance, businessescan get a tax credit for money they donate toscholarship organizations that help low‐​incomechildren pay for a good education. The scholarshiporganizations that receive the donationtax‐​credit money have become an institutionalbase for supporters and beneficiaries, and amobilized political force. Andrew LeFevre, executivedirector of the REACH Alliance, aPennsylvania school choice organizationfounded in 1991, describes the role of the morethan 180 Scholarship Organizations in theirstate: “These groups serve as a vital link betweenthe families that they serve and the legislatorsthat have been responsible for more thandoubling the program cap over the past sixyears.”

REACH works with the participating SOsto help them better understand the importanceof maintaining that personal relationship withtheir elected officials and the media to showthe tremendous positive impact that the programhas on children and families in their localdistricts. Many Scholarship Organizations nowrequire their families who receive scholarshipsto write to their elected officials to thank themfor their support of the initiative, thus generatingthousands of letters a year to Harrisburg onbehalf of the EITC (Earned Income Tax Credit)Program.

A similar dynamic has helped to solidifyand expand school choice policy in Arizona.Politicians, civic leaders, churches, and otherinfluential community institutions have becomeinvested in the initiative and are eager forits expansion. A former executive director of amajor Arizona school choice organization callsScholarship Tuition Organizations “the criticalconstituency that protects the program.”

Scholarship organizations are funded predominantlythrough the initiative they mobilizeconstituents to defend. So, tax credits, in otherwords, create groups with a direct interest in defendingand expanding them. The Florida creditprogram, in contrast to those in Arizona andPennsylvania, has produced relatively fewscholarship organizations because they are requiredto disburse 100% of the funds donated tothem in the form of scholarships, which meansthat they must raise money for operating costsoutside the credits system. Arizona allows theorganizations to keep up to 10% and Pennsylvaniasets the limit at 20%, which ensured thatrelatively powerful institutions sprang up quickly.

Voucher programs do not create these institutions,and their beneficiaries thereby have difficultyovercoming collective action barriers toorganize and defend school choice. This disadvantageis, of course, compounded in the caseof voucher programs targeting low‐​incomefamilies, who have few resources with which tomobilize in any case.

Power of the private sector

Tax credits establish a self‐​implementingform of school choice that relies on the privatesector alone. Voucher laws must establish anew government apparatus to implement schoolchoice or rely on a state education system thatgenerally is hostile to school choice. Regardlessof the procedure, the need for implementationby the state will increase costs and complicatematters significantly. It also will establishan additional venue for undermining schoolchoice as well as another issue—the administrativecosts to the state—on which to attackthe policy. Tax credits are easier to put in placeand more certain in their translation from proposalto practice because they require minimalparticipation from intervening governmentagencies to execute the legislation.

School choice supporters need to rememberthat the battle does not end when they win inthe legislature. Education tax credits build themost powerful political constituency, and thatis what ensures that a choice program survivesand grows.

Targeted tax credit programs are morepromising than targeted vouchers. Targetedschool choice programs are inferior to broadbasedones because they do not build the mostpolitically effective constituency for schoolchoice but, because targeted tax credits areself‐​reinforcing, they are much more likelythan targeted vouchers to survive and thrive.The only individuals directly benefiting fromtargeted voucher policies are low‐​income parentsand their children, who have the fewest resourcesto devote to political activity, andtherefore have little political influence.

The political disadvantages of low‐​incomeparents also are exacerbated by the fact that theorganizations most active in claiming to representtheir interests typically are the biggest opponentsof school choice. The NAACP andmost of the traditional black leadership, muchof the Democratic Party establishment, andother organizations with a reputation for advocacyon low‐​income, urban, and minority issuesare staunch foes of private school choice—despite the overwhelming support for schoolchoice among the populations for whom theyclaim to speak. The organizations that supportschool choice typically are without a reputationfor—or an organizational focus on—low-income,urban, and minority issues.

Though they have been passed more recently,targeted education tax credit programs haveexpanded much more rapidly and cover farmore children than vouchers do. Comparingonly state choice programs that target low‐​incomefamilies or children in failing schools,tax-credit programs support nearly 3.5 timesmore students than do vouchers, using aboutthe same amount of money. Though the averagebenefit going to each child is lower in taxcredit programs than it is with vouchers, taxcredits have the added strength of not fixing artificialprices for education or a scholarship.This enables scholarship organizations to workwith families and schools to determine theamount necessary to finance a child’s education,an amount usually far lower than governmentper‐​pupil spending or even many setvoucher amounts; the average tuition at privateschools is about half what is spent per pupil inthe public system. Tax credit programs aremore flexible and can respond more preciselyto a family’s needs. That allows tax credits toassist many more families than voucher programswith the same amount of funding—andtax credits build a larger customer base, whichhelps politically.

It is no surprise that targeted tax credits covermore children from low‐​income familiesthan do targeted vouchers. Even targeted taxcreditinitiatives still require the involvement oftaxpayers, businesses, and scholarship organizations,which provide crucial organizationaland political support for the programs. Althoughbroad‐​based programs are best, targetedtax credits are vastly preferable to targetedvouchers.

All things considered, the future looks brightfor school choice. Politicians and other policymakersare waking up to the advantages of educationtax credits. Big programs have spreadacross the states and are growing every year.Over time, tax credits are becoming the bipartisan“third way” on school choice, and citizensincreasingly are calling for more options andaccountability to them rather than governmentbureaucrats. School choice is the destinationand education tax credits are what will get usthere.