Vouchers essentially are checks that the state sends parents to use at schools that the government deems are voucher‐worthy. Tax credits, though, reduce the amount a taxpayer owes the government for each dollar he or she spends on a child’s education. Moreover, tax credits for donations to scholarship organizations can help support school choice for lower‐income families, and personal‐use credits can help middle‐ class families. For instance, if a business owes the state $4,000 and donates $4,000 to a scholarshipgranting organization, it would pay nothing in taxes. Similar benefits for donations can be applied to individuals.
Three states have modest forms of personal‐use tax credits: Illinois allows families to claim credits worth 25% of their educational expenses, up to $2,500; Iowa allows 25%, up to $1,000; and Minnesota allows 75% of nontuition expenses, up to a maximum credit of $1,000 per child. Five states— Arizona, Florida, Iowa, Pennsylvania, and Rhode Island— have more powerful donation credits. Pennsylvania allows a 90% credit for donations and Florida a 100% 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 that promises to spread educational freedom across the country. They are the future of school choice for five reasons:
Education tax credits are more popular than vouchers. Surveys generally demonstrate that tax credits command five to 10% more support than do vouchers. A large academic poll conducted for the magazine Education Next and the Program on Education Policy and Governance at Harvard University illustrates the remarkable wide support for tax credits. Even current and former public school employees favor them by a margin of nearly two to one; public school employees oppose vouchers by a two‐point margin.
Vouchers and tax credits fund school choice, but there are big differences between them. Only credits let taxpayers control their own money—they get to spend it directly on a child’s education or donate it to a scholarship fund. In a voucher program, taxpayers send their money to the government and it decides how to spend the funds. The Education Next-Harvard survey showed, in fact, that tax credits are more popular with the general public, with 53% supporting them and 45% favoring vouchers. Moreover, there is much more opposition to vouchers, with 34% opposing them and 25% against credits. Some say tax credits are more popular because teachers’ unions have spent 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 the question.
One possible reason for the popularity of credits is that tax benefits are a common and popular policy vehicle, and most Americans have had good experiences with them. For instance, the HOPE Scholarship tax credit (which gives taxpayers credits on a portion of college expenses), child tax credits, and home mortgage deductions are recognized widely and remain popular tax breaks among middle‐class voters; these kinds of policies often get more than 70% or 80% support.
Some critics have lamented the proliferation of special interest tax credits and deductions, but these are proliferating for a reason. Tax credits are a popular and relatively easy way to provide benefits for particular types of activities. Credits for education expenses have the same advantages and, unlike a number of other tax benefits, are amply justified improvements on a tax‐funded government education monopoly. Education tax credits command the popular support necessary to expand school choice significantly.
Vouchers court legal trouble where tax credits do not. Tax credits are more legally viable than vouchers because they are private funds and vouchers are government funds. State courts repeatedly have ruled that vouchers are government funds, and the disbursement of government funds to religious schools expressly is prohibited in most states by anti‐Catholic “Blaine” amendments dating back to the turn of the 20th century. Many states also have “compelled support” clauses, which accomplish the same result through different language. Because the elimination of religious schools from choice programs excludes around 90% of current private schools, this renders any such program largely ineffectual.
Religious clauses are the highest‐profile threats to voucher programs, but vouchers are vulnerable to many other constitutional provisions as well. Recent voucher defeats were based upon seemingly innocuous education clauses common in state constitutions. In Colorado, vouchers were brought down in 2004 by a clause mandating local control over local revenue and, in Florida, they were overturned in 2006 based on a clause enforcing a “uniform” system of education. Neither of these rulings had anything to do with religion, but rested on the fact that vouchers are considered government funds.
In 2002, Frank Kemerer, regents professor of teacher education and administration at the University of North Texas, reviewed each state’s case law and judicial climate in order to characterize the likely orientation of the courts if a voucher law were to be challenged. He concluded that 17 states have a restrictive orientation toward vouchers; 19, a permissive orientation; and 14, an uncertain orientation. So far, voucher laws have been ruled unconstitutional in two out of the four states in which they have been challenged: Colorado and Florida. (These cases concluded after Kemerer’s paper, which listed them as “uncertain,” was published.)
The Institute for Justice, a libertarian public interest law firm that has defended many school choice programs in court, comes to a similar, if more optimistic, conclusion in a comprehensive study of state constitutions and legal precedent. IJ recommends that tax credits, but not vouchers, be pursued in 32% of states and that either credits or vouchers be pursued in most of the rest. This analysis likely underestimates the legal difficulties vouchers face in states even without restrictive Blaine or “compelled support” amendment precedent. The plight of Florida and Colorado’s voucher laws shows that courts disposed against vouchers can find creative ways to overturn them, relying upon their status as government funds and myriad other constitutional provisions.
The general legal difficulties that vouchers face, in other words, significantly can dampen political and legislative support relative to tax credits. Politicians and other political actors consider the disposition of the courts and are much less likely to fight for and pass legislation that has a high probability of being voided by the courts.
States with particularly restrictive clauses and precedents may face unanticipated difficulties even with conservative courts. Liberal courts are disposed to discover something in state constitutions that will disqualify the law, regardless of whether the constitution prohibits vouchers according to a strict constructionist reading, but conservative courts that may be friendlier to school choice also will adhere more closely to a strict reading of the letter and intent of the constitution. If a state constitution contains language meant to stop government funds from going to religious or private institutions for education, conservative judges may feel constrained to rule against vouchers even though the funds go first to families rather than the religious organizations.
Because education tax credits are taxpayer funds rather than government dollars, they attenuate or avoid many legal difficulties and the record of court challenges proves the point. The courts never have overturned modern education tax credits or deductions—these policies have been upheld explicitly in all state and Federal legal challenges. School choice opponents have thrown everything at education tax credits, to no avail.
People working on the school choice issue also agree that tax credits are more legally viable than vouchers. In 2006, the Mackinac Center for Public Policy published the results of a survey of organizations working on school choice that I conducted; it found that 67% of respondents think vouchers are more likely to be challenged in court, compared to just three percent who chose tax credits—and, by a margin of 53 points, respondents also thought that tax credits were more likely to survive a court challenge.
Even opponents of school choice agree that tax credits are more viable than vouchers. Marc Egan, director of the Voucher Strategy Center for the National School Boards Association, has written extensively on the best strategy for defeating school choice efforts. The NSBA is as committed in its opposition to school choice as is the National Education Association. Egan describes vouchers as “cash government payments,” but agrees that education tax credits are “technically not government dollars.” This leader in antischool choice strategy describes tax credits as “bullet‐proof on constitutional issues” because they have survived every legal challenge to date. People on both sides of the school choice issue, and the actual record in court, agree that tax credits are the most likely to put legal fears and problems to rest.
Tax credits are less likely to be challenged and overturned by state courts. It is difficult enough to convince legislators to stand up to the government education industry and support school choice without them worrying that the law will be found unconstitutional. Education tax credits come with little of the legal baggage under which vouchers currently strain.
Education tax credits have the support of a bigger coalition; they are the school choice “third way.” Tax credits command support from a larger coalition of conservatives, free market advocates, and private schools than do vouchers, in large part for the same reason they are more legally viable: they are not government funds and pose less danger to the autonomy of private schools that accept them. This legal issue has major implications for the school choice coalition. Many social conservatives and libertarians, as well as private school, home school, and religious organizations that oppose or only weakly support vouchers prefer education tax credits.
Vouchers bring regulation
The Home School Legal Defense Association published an issue paper in 2002, “Reasons Home Schoolers Should Avoid Government Vouchers,” but it actively supports education tax credits. Likewise, many religious conservatives are more supportive of tax credits than they are of vouchers. Maureen Wiebe, legislative representative for the American Association of Christian Schools, says her organization is uncomfortable with vouchers as a vehicle for school choice, but wholeheartedly supports education tax credits. These and other organizations fear that vouchers, as general revenue from government coffers, will bring increased regulation and control of private education.
Together, home‐school supporters and social conservatives are a well‐organized political constituency with a proven track record of grassroots mobilization. Emphasizing vouchers deals a major blow to school choice because it alienates the movement’s most powerful natural allies.
The concern with government funds bringing government control is not exclusive to religious conservatives. The National Association of Independent Schools, the largest association for nonreligiously affiliated private schools, does not take an official position on many policies, leaving statements on more controversial issues to its autonomous member schools. However, Amy Sechler, NAIS director of legislative affairs, says her association recognizes that vouchers often bring more challenges to private school autonomy than do tax credits. A 2006 poll of leaders in the school choice movement, conducted by myself and the Mackinac Center, showed that they prefer tax credits as well; although still low, their opposition to vouchers is more than double their opposition to tax credits.
Furthermore, there seems to be more support and less opposition to tax credits among Democratic political leaders. Arizona, Rhode Island, and Iowa passed tax‐credit initiatives last year, and Pennsylvania expanded its existing business tax credit program. The Arizona, Iowa, and Pennsylvania bills became law under Democratic governors, and the Rhode Island business‐tax credit was born in a legislature controlled by Democrats. In New Jersey, a strong center‐left coalition, including many prominent African‐American Democrats— most notably, Newark Mayor Cory Booker— supports tax credits. Finally, in deep‐blue New York, Democratic Gov. Eliot Spitzer proposed an education tax deduction in his first state budget, but he is not in favor of vouchers for school choice. Most voucher foes are against tax credits as well, but there are signs that some political opposition to tax credits is weakening, whereas opposition to vouchers remains relatively solid.
School choice battles incite bitter resistance from one of the largest, most politically potent and well‐financed set of economic interests in the nation: public school employee unions. Even if they disagree with the general assessment of the danger that vouchers pose to private schools, school choice supporters need the most powerful coalition they can muster to pass and defend school choice legislation. Indeed, coalitional support is perhaps even more important than popular support when dealing with such a divisive issue, particularly when the public knows so little about it.
The vast majority of political and ideological support for school choice resides on the right side of the political spectrum, and the vast majority of opposition comes from the left. When elite opinion on an issue is polarized along ideological lines, mass opinion tends to move along similar lines. While that is not surprising, it often is overlooked by school choice supporters; as school choice becomes a live issue in a state, liberal elites tend to drive up liberal and Democratic opposition to school choice and conservative leadership drums up conservative and Republican support. Voucher legislation, however, enervates and eliminates large, politically active blocks of the private school, home school, and general conservative constituencies. Education tax credits unify the largest possible coalition while inspiring no more resistance—and possibly less—than vouchers.
Education tax credit programs are self‐reinforcing. Education tax credits do the most to encourage the quick development of a powerful and organized constituency. 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 is 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 goodwill.
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 quickly can 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. 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 the more than 180 Scholarship Organizations in their state: “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 Scholarship Organizations now require their families who receive scholarships to write to their elected officials to thank them for their support of the initiative, thus generating thousands of letters a year to Harrisburg on behalf of the EITC (Earned Income Tax Credit) 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 initiative 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 predominantly through the initiative 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% of the funds donated to 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% and Pennsylvania sets the limit at 20%, which ensured that relatively powerful institutions sprang up quickly.
Voucher programs do not create these institutions, and their beneficiaries thereby have difficulty overcoming collective action barriers to organize and defend 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.
Power of the private sector
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 generally is hostile to school choice. Regardless of the procedure, the need for implementation by the state will increase costs and complicate matters significantly. It also will establish an additional venue for undermining school choice as well as another issue—the administrative costs to the state—on which to attack the policy. Tax credits are easier to put in place 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 does not end when they win in the legislature. Education tax credits build the most powerful political constituency, and that is what ensures that a choice program survives and grows.
Targeted tax credit programs are more promising than targeted vouchers. Targeted school choice programs are inferior to broadbased ones because they do not build the most politically effective constituency for school choice but, because targeted tax credits are self‐reinforcing, they are much more likely than targeted vouchers to survive and thrive. The only individuals directly benefiting from targeted voucher policies are low‐income parents and their children, who have the fewest resources to devote to political activity, and therefore have little political influence.
The political disadvantages of low‐income parents also are exacerbated by the fact that the organizations most active in claiming to represent their interests typically are the biggest opponents of school choice. The NAACP and most of the traditional black leadership, much of the Democratic Party establishment, and other organizations with a reputation for advocacy on low‐income, urban, and minority issues are staunch foes of private school choice —despite the overwhelming support for school choice among the populations for whom they claim to speak. The organizations that support school choice typically are without a reputation for—or an organizational focus on—low-income, urban, and minority issues.
Though they have been passed more recently, targeted education tax credit programs have expanded much more rapidly and cover far more children than vouchers do. Comparing only state choice programs that target low‐income families or children in failing schools, tax‐credit programs support nearly 3.5 times more students than do vouchers, using about the same amount of money. Though the average benefit going to each child is lower in tax credit programs than it is with vouchers, tax credits have the added strength of not fixing artificial prices for education or a scholarship. This enables scholarship organizations to work with families and schools to determine the amount necessary to finance a child’s education, an amount usually far lower than government per‐pupil spending or even many set voucher amounts; the average tuition at private schools is about half what is spent per pupil in the public system. Tax credit programs are more flexible and can respond more precisely to a family’s needs. That allows tax credits to assist many more families than voucher programs with the same amount of funding—and tax credits build a larger customer base, which helps politically.
It is no surprise that targeted tax credits cover more children from low‐income families than do targeted vouchers. Even targeted taxcredit initiatives still require the involvement of taxpayers, businesses, and scholarship organizations, which provide crucial organizational and political support for the programs. Although broad‐based programs are best, targeted tax credits are vastly preferable to targeted vouchers.
All things considered, the future looks bright for school choice. Politicians and other policymakers are waking up to the advantages of education tax credits. Big programs have spread across the states and are growing every year. Over time, tax credits are becoming the bipartisan “third way” on school choice, and citizens increasingly are calling for more options and accountability to them rather than government bureaucrats. School choice is the destination and education tax credits are what will get us there.