Research

A relatively new development in attempts to increase educational choices for families of all incomes is to provide parents with a tax credit equal to part or the full cost of tuition, as well as other educational expenses. There are numerous variations of this idea, but they all essentially reimburse parents for the costs of educating their children.

Education tax credits are currently available in the states of Arizona, Illinois, Iowa, and Minnesota. Reclaiming Our Schools: Increasing Parental Control of Education through the Universal Education Credit (December 2000), by Darcy Ann Olsen and Matthew J. Brouillette

Although demand for alternatives to state-run schools have increased, the availability of alternatives generally hasn't kept pace: only 2 percent of all school children in the U.S. are either attending a charter school or receiving a school choice voucher. According to the study, "[u]nlike traditional credits, however, the universal education credit has been uniquely designed to assist families with limited or no tax liability. Under this plan, any parent, individual taxpayer, or business would receive a dollar-for-dollar reduction in tax liability for money spent on tuition."

As an example of the school-choice benefits to such a law, the plan would create an incentive for a company to choose between paying $1 million in taxes to the federal government or paying $1,000 tuition for 1,000 students. The company would pay for the school choice scholarships and receive a $1 million tax credit. Under just such a plan enacted in Arizona, businesses have doned around $14 million for school-choice scholarships.

Arizona's Tax Credit: A School Choice Model (July 2000), by Nina Shokraii Rees This article makes the case that the Arizona education tax credit is a model for the rest of the nation because it includes a "$500, dollar-for-dollar tax credit to anyone who contributes to a private charity…that uses the money to pay tuition for eligible students at a private, or fee-based, school. Arizonans can also receive a $200 tax credit for donating money directly to public schools." More than 30,000 people gave a total of $13.2 million to these scholarship programs in 1999.

Since the Arizona law was enacted in 1997, 32 new charities have been started to provide tuition scholarships (in addition to two that had already existed). These scholarships are being awarded to those who need them most: students from low-income or moderate-income families that can't afford tuition or the cost of moving to a better school district.

The Universal Tuition Tax Credit: Achieving Excellence in Education Without a Tax Increase (September 1999), by Carlisle E. Moody and Jerry Ellig This study makes the point that "[a]lthough parents are charged with the responsibility of making critical, even life and death, decisions concerning their children's welfare, most Virginia parents are unable to make a true choice with respect to one vital aspect of their children's lives. Their children are sent to a government-mandated, government-assigned, government-controlled educational institutions."

The study proposes a Universal Tuition Tax Credit (UTTC) that would allow parents to receive a "dollar for dollar reduction in their Virginia State Income Tax liability for every dollar spent on tuition, up to a limit of one-half of the per pupil expenditure in the public school system, or 80 percent of the private school tuition, whichever is smaller." It also proposes allowing corporations to receive a "100 percent tax credit for money donated to fund scholarships. Thus, students whose families are too poor to pay a significant amount of state income tax and who therefore could not take advantage of a tax credit, could nevertheless receive a scholarship funded by the UTTC."

The study also make the point that students choosing to remain in the existing public schools benefit from the plan: they would have "smaller class sizes and higher spending per pupil." Also, the study notes, "[t]eachers benefit from having more independent schools bidding for their services."

The Universal Tuition Tax Credit: A Proposal to Advance Parental Choice in Education (November 1997), by Patrick L. Anderson, Richard McLellan, Joseph P. Overton, and Gary Wolfram This study proposes allowing anyone - including businesses - to receive a tax credit for a portion of the tuition money spent to send students to any public or private school in the state. The plan includes a nine-year phase in of tax credits "limited to lesser of 50 percent of the amount of Michigan public schools receive to educate each pupil or 80 percent of actual tuition paid." In order to benefit low-income students the 80-percent cap would be waived.

The proposal allows "both parents and non-parents to obtain tax relief when they support a student at an alternative school." The study estimates that by allowing the credit to be applied to three Michigan state taxes -- the Individual Income tax, the Single Business Tax, and the 6-mill state education property tax - that the total savings would be approximately $7.5 billion during the 1996-97 school year.

An Analysis of the District of Columbia Education Tax Credit Initiative (October 1981), by E.G. West According to this study, an educational tax credit that was on Washington, D.C.'s 1981 ballot "for the first time in the twentieth century [would have allowed] all families [to] be given the effective freedom to choose schools for their children. This is a privilege that has been enjoyed before only by those families that can afford to 'pay twice' for schooling, once through their conventional tax payments, and once through the direct tuition charge at a private school." The maximum credit allowed under the proposal was $1,200, more than the average cost of private-school tuition at the time, and would have "enable[d] families to gain access to most private schools, even if they were not prepared to pay extra amounts from their incomes."