RALEIGH – I used to support tax-funded vouchers programs to promote choice and competition in elementary and secondary education. Of late, I’ve been rethinking that position.
It’s not that I’ve changed my mind about school choice. It is still a critical element of any reform effort to promote excellence in education. Choice is ubiquitous in the child-care and preschool market, the higher education market, and the huge market for after-school and extracurricular programs (think music, dance, crafts, and sports). It is present in many of the countries with which American students compete (poorly).
The issue is one of means. While I believe that state government has a legitimate role in promoting education, there is no reason that it must, through local governments of its creation, organize and operate virtually all of the schools our children attend. Rather than owning schools, it has at least two other options: 1) providing a certain amount of funding per student, perhaps adjusted for socioeconomic status and special needs, with which families can help defray the cost of attending schools of their choice; or 2) providing tax relief for private educational investment.
The first option is generally called a voucher or scholarship program. To me, the main selling points of vouchers were practical ones – families of modest means could immediately make use of them, unlike even refundable tax credits, and they put the government’s expenditure on the budget books for clear understanding and analysis.
The main disadvantages were evident, too. The use of vouchers put government into the dangerous position of routing funds directly to private educational institutions, albeit at the behest of choosy parents. Voucher-like subsidies to private colleges and preschools in North Carolina have been around for years, and haven’t resulted in destructive raids on the autonomy and values of recipient institutions. But the risk is always there. With K-12 schools, it seems reasonable to conclude that the risk would be greater.
Furthermore, as Adam Schaeffer discusses in an excellent new paper for the Cato Institute, vouchers have far greater legal and political challenges than do school-choice programs based on the tax code. “Tax credits are less likely to be challenged in court, less likely to be overturned by a court, less likely to come with burdensome regulations, and less likely to accumulate regulations over time,” Schaeffer argues.
As it happens, educational tax relief has long been the core of the school-choice agenda advocated by John Locke Foundation analysts. To the extent that most of us endorsed voucher programs, the endorsement was limited to means-tested programs aimed as families whose income-tax liability was insufficient to benefit from a traditional tuition-tax credit. Poor families are also, of course, the most victimized by the current monopoly system, which blocks new entrants to the education marketplace by directing tax money only to government schools and maintaining a rigid cap on the number of such schools lying outside the control of governmental districts.
But I now think that the problem of extending choice to these poor families can be solved by more innovative approaches to educational tax relief. Schaeffer outlines these solutions in his paper.
One is to improve on the universal tax credit programs now in operation in Pennsylvania, Arizona, and other states. These allow individuals and companies to take tax credits for donations to educational-scholarship organizations that help low-income families afford private schooling. A key point is that state legislation should allow such scholarship organizations to use a portion of the tax-refunded donations, say 10 percent, for administrative and marketing expenses to ensure that potential recipients are aware of their new educational options.
The second innovation Schaeffer endorses is to offer a tax credit not just against income taxes but also against state sales taxes and the portion of local property taxes devoted to education. This would allow more families of modest means to participate, and rightfully so – sales and property taxes, no less than income taxes, reduce their wherewithal to spend their own money on better education for their children.
The complexity of Schaeffer’s tax credit still concerns me a bit, and I part company with him in preferring a refundable income-tax credit, which could accomplish the same objective if properly structured. Indeed, one way it would be better is that it would offset the implicit property tax for renters, something that a formal property-tax credit probably won’t be able to do.
Different routes, same destination: school choice for all.
Hood is president of the John Locke Foundation.