Tuition Tax Credit Policies: The Next Frontier in School Choice?

WASHINGTON, JANUARY 13, 2009--Charter schools and school vouchers dominate discussions of school choice. But little is known about the newest approach to school choice: tuition tax credits. Introduced in Arizona in 1997 and most recently adopted in Georgia in 2008, these credits use the tax code to help individuals and corporations steer millions of dollars into K-12 private school scholarships for eligible students. University of Colorado professor Kevin Welner calls these tax credits "neovouchers." On December 15, 2008, Frederick M. Hess hosted a conversation at AEI with Welner and several other education experts to discuss the potential opportunities and drawbacks of neovouchers.

While conventional voucher programs offer parents direct state aid to use toward private school tuition, Welner explained, neovouchers serve and reach parents more indirectly. "A taxpayer donor donates money to an organization that then bundles those donations and hands them out in vouchers to parents to use at nonpublic schools." Then, "the taxpayer donor receives all or part of that donated money back from the state in the form of a tax credit." Despite their novelty, he added, tuition tax credits "actually dwarf traditional vouchers in terms of their scope." They now operate in six states--Arizona, Florida, Pennsylvania, Rhode Island, Iowa, and Georgia--and serve 91,000 students, compared to 52,000 students receiving traditional vouchers. Some states allow only corporate tax credits, while others allow individual donors to earmark money toward a particular child's education.

Critics have claimed tax credit programs are "vouchers in sheep's clothing"  "The fact is, a voucher is a voucher is a voucher," Sheila Simmons of the National Education Association said. For better or worse, neovouchers do bypass some of the traditional judicial and political barriers that vouchers have faced. Welner explained that neovouchers are "more likely to withstand court challenge and more likely to garner political support" and that neovoucher advocates have been able to "focus more on the parental choice argument relatively unencumbered by the baggage of past voucher battles."

Adam Schaeffer of the Cato Institute rejected "this notion that there's no real difference between tax credits and vouchers, that it's just a shell game or some way to avoid legal problems." He went on: "Courts are recognizing a real difference here--that taxpayers, and not the government, [are] deciding where their own money goes. . . .Keeping your own money is not the same thing as all your money going into a public pot, and being doled out from there."

Wealthier individuals tend to benefit most from neovouchers, Welner said, since taxpayers in higher income brackets are more likely to itemize and receive tax credits than those in lower brackets. Furthermore, two of the major neovoucher programs have no family income restrictions on voucher eligibility. "If we throw the life vests to those parents who are efficacious enough and that works," Welner opined, "we still are left with the situation that the kids who were worse off before, the kids with the least advantages before, are now left in a school system that has had certain resources taken away from them." Simmons echoed this sentiment. "How are you going to deal with capacity?" she asked. "Because still only a few of those parents and those families will be able to get those credits." Kevin Chavous of Sonnenschein Nath & Rosenthal LLP emphasized that while he did not view vouchers as "a validation of one system or another," means-testing should be a mandatory component of any voucher program. Vouchers are about "creating more and more options for parents to be able to put their children in the educational or learning environment that works for them. Period."

Above all, Welner reiterated his concern that neovouchers are "unproven, largely unstudied, and largely beyond the reach of solid evaluation." He elaborated that "one of the things that's most troubling to me as a policy analyst is that it's foolish for policymakers to adopt neovoucher laws that do not allow for empirical determination of whether the laws are working, whether they're providing academic benefits." Simmons added that it does not make sense to "pull money from public education when we know that there are things out there that have worked."  Chavous countered, "I look at it the other way. We know what's not working." The chronically low graduation and achievement rates among certain populations present a crisis, and "if there's such a precipitous slide in terms of the outputs of these children, then there's absolutely nothing wrong with reaching into that toolkit and grabbing whatever is at our disposal to try to cure those deficits." Schaeffer argued that the tax credits have been appropriately tested and proven. Tuition tax credits rely on the "mechanism which is the choice and free actions of consumers and producers of education . . . [and] that's well tested in numerous fields more than anything currently on the table for public education."

--ROSEMARY KENDRICK

For video, audio, and event information, visit www.aei.org/event1848/.

For media inquiries, contact Veronique Rodman at vrodman@aei.org or 202.862.4870.

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