Are tax credits disguised vouchers?

17 Jun

Sean Cavanagh has an excellent Education Week article, Tax Credit Strategy Fuels Private School Choice Push:

Unlike traditional voucher programs, which award taxpayer money directly to students to attend private schools, tax-credit programs give individuals or corporations a break on their yearly bills if they contribute to organizations that award private school scholarships to students.

Backers of the programs say they give families, many of them impoverished, a broader range of school options. They also tout the programs’ financial benefits, predicting that states will save money, as sufficient numbers of students leave public schools to offset losses to state revenues from tax credits. In addition, supporters of the tax-credit models see them as more insulated from legal challenges than traditional voucher programs, which have been found to violate the constitutions of a number of states.

Yet the tax-credit models also have many detractors, who describe them as vouchers in disguise, and say that estimates of cost savings are speculative and likely exaggerated. Critics also say some states’ programs lack transparency, and include loopholes that can allow families and private schools to game the system, at a cost to taxpayers.

Despite those concerns, the programs continue to grow. Ten states have laws on the books allowing tax-credit scholarships, and at least 17 others have considered proposals to create them this year, according to the National Conference of State Legislatures.

The interest is evident in states like North Carolina, where a bipartisan proposal would offer impoverished students private school scholarships of up to $4,000. The program would be funded with corporate tax credits, which would be capped at $40 million statewide initially, with room for growth later.

“Parents need more choices, because students’ needs are different, and one size does not fit all,” said state Rep. Paul Stam, the Republican majority leader of his chamber and a bill sponsor, in an interview. “Parents want it. It gives them the chance to choose the education that’s best for their child.”

Savings, or Expenses?

A number of states that have created or are considering tax-credit scholarship programs for private schools have relied on analyses saying the measures have, or will, save taxpayers money. The idea is that while the state loses revenue through the tax credit, it can save when students leave public schools to attend private schools. Those states also must consider whether participating students would have gone to private schools, anyway—in which case, the state would not save money on students’ leaving the public system.

A preliminary state analysis of pending legislation in North Carolina made projections for 2014-15, the third year of the program:

Money Flow

• Tax credits granted (loss to state): $54 million
• Reduced public school state spending, as a result of program: $47.1 million
• Net fiscal impact on state: $7.2 million
• Potential savings to school districts serving fewer students: $19.2 million
• Combined state/local impact: $12 million savings

Student Projections

• Average public school expenditure per child: $4,746
• Average scholarship award: $3,800
• Total scholarships available: 13,038
• Students who would have gone to private school, anyway, without the scholarship program: 3,206
• Students expected to transfer from public to private school because of the program: 9,926
• —Students who are “gaming the system,” or who enroll temporarily in public schools, just to qualify for a private scholarship: 86


33 percent of private school students and 52 percent of public school students meet the program’s income eligibility criteria, based on U.S. Census data

SOURCE: Fiscal Research Division, North Carolina General Assembly

Barbara Miner has an excellent article in Rethinking Schools.

In Keeping Public Schools Public, Miner writes:

The term tuition tax credits is popularly used to refer to various tax-based programs that funnel money to private schools. There are two main approaches: tuition tax credits and tuition tax deductions.

Under tax credits, an income tax bill is directly reduced. If you owe $4,000 in taxes for the year and you are eligible for a $500 tuition tax credit, you only have to pay $3,500 in taxes. In essence, the government has given you a gift of $500 to offset your private school tuition.

A tax deduction reduces the taxable income used to calculate how much you owe in taxes. Let’s say your taxable income is $50,000 but you are eligible for a state’s $1,000 tuition tax deduction. You would then pay taxes based on a taxable income of $49,000.

Fundamentally, tuition tax credits are a way to use public policy to increase the money going to private schools and to relieve the financial burden on middle- and upper-income families with children already in private schools. “Tuition tax credits are an offshoot of the voucher concept,” notes Marc Egan, director of the Voucher Strategy Center for the National School Boards Association. “They are an attempt to drain critical dollars from public schools. While vouchers are a direct drain, tuition tax credits do the same, but through the tax code.”

Even privatization supporters note the inherent link between vouchers and tuition tax credits. As Andy LeFevre, head of the education task force of the ultraconservative American Legislative Exchange Council puts it, with tuition tax credits “the end goal is the same as the voucher; it’s just a different way to come about it.”

While the major supporters of tuition tax credits have historically been the Catholic Church and other religious institutions, the rhetoric has shifted in recent years to tax credits as a vehicle of “choice” and “marketplacebased competition.” In this reincarnation, tax credits are promoted as education reform. And, taking a page from the voucher movement, supporters have found it’s easier to pass tuition tax schemes if they are clothed in the mantle of helping poor kids.

See:  Public Money Finds Back Door to Private Schools             

School Choices has information about School Vouchers

Issues and Arguments

     School vouchers, also known as scholarships, redirect the flow of education funding, channeling it directly to individual families rather than to school districts. This allows families to select the public or private schools of their choice and have all or part of the tuition paid. Scholarships are advocated on the grounds that parental choice and competition between public and private schools will improve education for all children. Vouchers can be funded and administered by the government, by private organizations, or by some combination of both.
This page brings together some of the most important sources of evidence on the outcomes of existing scholarship programs. It includes studies of both privately- and publicly-funded programs, as well as the results of a key court case. (A more comprehensive discussion of the advantages and disadvantages of both private and government-funded scholarships can be found in the book
Market Education: The Unknown History.)

     Government-run voucher programs are very controversial, and they have been criticized from two very different angles. The first body of criticism alleges that competitive markets are not well suited to the field of education, and that any school reform based on privatization, competition, and parental choice is doomed to failure. A summary of these arguments, with responses, can be found by clicking here.
The second body of criticism states that government-funded scholarships would not create a genuinely free educational market, but instead would perpetuate dependence on government funding and regulation to the continued detriment of families. These arguments, along with responses are described here.

Charter schools and vouchers are possible options in the theory of “school choice.”

Andrew Rotherham has an excellent article in Time, The 5 Biggest Myths About School Vouchers 

1. Vouchers skim the best students from public schools. Although many voucher proponents want universal vouchers, today, the programs are targeted to specific populations, for instance low-income students or students with disabilities. So while vouchers don’t generally serve the absolute poorest of the poor, they do not skim off the most affluent or easiest-to-educate students either….

2. Students who receive vouchers do better academically than their public school peers. That depends on the measure. Overall the test scores of students who use vouchers are largely indistinguishable from students who stay behind in public schools. On the other hand, parent satisfaction is generally greater among parents whose children received vouchers. And while it’s too soon to tell for sure, there is some evidence that other outcomes, for instance graduation rates, may be better for students who receive vouchers. ….

3. Vouchers drain money from the public schools. It seems obvious that taking money from the public schools and sending it to private schools would leave public schools with less money. But in the through the looking glass world of school finance, things rarely are what they seem. In Milwaukee for instance, Robert Costrell of the School Choice Demonstration Project analyzed the financial outcomes of the voucher program and found that it is saving money in Wisconsin. And, in Washington, D.C. there was an infusion of federal funds into the city’s public schools in exchange for the passage of the voucher program.

4. Vouchers make all schools get better because they have to compete for students. It seems logical to assume that forcing schools to vie for students will improve quality. But schools are not economic entities like a store and respond differently to competition — for instance by going to court or to lobby state legislators. There have been vouchers for years in Cleveland and Milwaukee yet the schools there are still generally poor quality. In Washington almost a third of the city’s students were using various choice options (mostly charter schools) before the public schools began to make real changes. But, we’re still learning. Researchers at the National Center for Analysis of Longitudinal Data in Education Research have found evidence that competition improved schools in Florida.

5. Private, parochial, or even public charter schools are better than regular public schools. Parents should worry a lot less about the legal status of a particular school than whether it’s the right school for their child. A good fit depends on a host of factors including a strong academic program, successful outcomes, a clear curriculum, areas of emphasis like arts or technology, and even lifestyle factors such as limiting time spent in transit or a year-round schedule. Just because a school is private doesn’t mean it is better overall or better for your child and even in places where the public schools are struggling overall there are often hidden gems. ….

There is no magic bullet or “Holy Grail” in education. There is only what works to produce academic achievement in each population of children. That is why school choice is so important. Moi does not have the dread of a well-defined voucher program targeted at at-risk children. The tax credit program is entirely a horse of a different color and should be discouraged.

Dr. Wilda says this about that ©

2 Responses to “Are tax credits disguised vouchers?”


  1. Given school choice, many students thrive « drwilda - August 23, 2012

    […] Are tax credits disguised vouchers?                                                            […]

  2. Study: D.C. voucher program ‘Opportunity Scholarship Program’ shows economic benefit « drwilda - February 5, 2013

    […] Are tax credits disguised vouchers?                         […]

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