Tax Credits, Not Vouchers

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For some, vouchers are the way to reform American education. Here’s how a voucher program would work:

  1. You pay taxes to the local school district.
  2. In Pennsylvania, this tax is on your real estate. You are now out perhaps $1100 if you own an average home.
  3. You do not wish to send your children to the local public schools.
  4. It would be nice if you could have spent your $1100 on the education of your own children.
  5. And so a voucher program returns your $1100 to you, minus the cost of the educational bureaucracy, you understand, and almost certainly with strings attached.

There is a word for such a program: “inefficient” (ill-conceived would be another term).

Rather than follow such a cumbersome procedure, the Pennsylvania and Florida legislatures have shown the way to genuine reform, namely, tax credits. As reported on the web site of Children First America (which supports vouchers),

the Pennsylvania legislature passed legislation creating a tax credit for corporations to donate money to Scholarship Organizations. A corporation will receive a 75 percent tax credit for their donation. However, if a corporation provides a two-year commitment for equal or greater funding the second year, the tax credit will be 90 percent. Scholarship Organizations will provide scholarships for public and non-public school children to attend the school of their choice. The cap on this program is $30 million, with 66 percent ($20 million) guaranteed for scholarships. Scholarship organizations must be a non-profit, IRS registered 501(c)3 and distribute 80 percent of their funds for K-12 scholarships. In addition, the legislature created a tuition fund for children in grades 3 through 6 in need of remedial education.

In other words, in Pennsylvania, it is possible for a corporation to receive a 90 percent tax credit by providing scholarships. A tax credit means that the amount donated is counted directly against the amount of taxes owed. This is to be distinguished from a tax deduction, which decreases the amount of income on which you are taxed.

A point, then, about fundamental fairness in tax policy: if a corporation receives tax credit for scholarship donations, there is no reason why parents who pay private school tuition should not receive tax credits for their tuition expenditures.

The tax credit approach is superior to the voucher approach for the very simple reason that it cuts out the middle man, in this case, the educational bureaucracy. No need to give money to the school district and then petition to get a few crumbs back. Instead, under a tax credit system, you would pay your $1100 in property taxes, and then receive a tax credit in April for the amount of tuition you have paid. For the Catholic high schools in my town, tuition is perhaps $4500 a year. Which means that you come out ahead.

As a matter of principle, there should of course be no such thing as a public school, any more than there are public restaurants or public home improvement stores. If education is such a basic need that compulsory tax funding and government control is a necessity, then the same logic applies to food and shelter, and hence to restaurants and home improvement stores (if not houses themselves).

The difficulty, of course, is in the practical reality. The “free” public schools are as bad as “free” public housing. They allow of no choice, and hence have no incentives to perform. On this point, see Bureaucracy, by Ludwig von Mises. The difference between public and private control is the profit motive: a private business can go out of business, while the government…well, it tends to hang around, if not swell itself on ever-increasing taxes.

And let us not forget, of course, an additional reality of “public” schooling, namely, political control. What is public is political, as a matter of nature. And yet the ballot box is perhaps the worst way to select individuals qualified to run a school, let alone entire districts of schools. When you were in school, should there have been a vote of the school children to select the principal and teachers? Yet that is precisely the situation with respect to the public schools. Those best able to ham for the cameras and blow dry their hair get to decide what your children learn.

A proposal: it is time for fair tax policy. If corporations may receive tax credits for scholarship expenditures, then parents should receive tax credits for tuition expenditures. Individual tax payers should also be able to receive tax credits for donating to scholarship funds. For that matter, if corporations do not receive credits, those who pay tuition should, as they are likely to face stronger budgetary pressures. Working class parents who do not want to see their children exposed to the moral wasteland of the public schools should not have to watch their children be corrupted because their money has been taken from them by taxation.

Additionally, tax credits for tuition should be dollar for dollar, at 100% (the philadering perjurer, Bill Clinton, enacted a federal tuition credit, but it is a paltry 15%). The theory behind taxation for public schools is that everyone benefits from an educated public, and so everyone should be forced to pay for public schools. This ignores, of course, the fact that more benefits are derived from privately educated persons, as such are by and large better educated, and that people can be forced to pay for literally anything on such a theory. If I have an attractive house, with nice architecture and beautiful rose gardens, perhaps I should tax all the people who drive by to view my house. This is, of course, silly.

In the meantime, while working toward tax credits for tuition payments, there is something else that can be done. During a recent capital campaign at my parish, it was mentioned that there is a Roman Catholic parish in Wichita, Kansas, where all the children in the parish go to the parish grade school for nothing. The parish also pays for children of parishioners to attend the local Catholic high schools. For nothing.

How do they do this? By savings and investment. Over time, it is possible to fund an endowment, such as that had by colleges and universities. This takes patience, careful financial planning, and wisdom. Rather than blowing money on redesigning Catholic churches to look like movie theaters with white walls, for example, parishes and dioceses could intelligently plan for the long term.

There is, of course, no free lunch. Someone had to contribute the funds to create the endowment in Wichita, but you get the idea. Through prudent planning, it is possible for future generations of children to benefit from the saving and investment of the present generation.

So how about it: tax credits for everyone, not just corporations. Tax credits for parents who pay tuition, and tax credits for individuals who donate to schools. Fair is fair. It’s for the children, right?

Mr. Dieteman [send him mail] is an attorney in Erie, Pennsylvania, and a PhD candidate in philosophy at The Catholic University of America.

© 2001 David Dieteman

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