Universal Tuition Tax Credits

Last month I presented the concept of a Universal Tuition Tax Credit for K-12 at the MPR Town Hall Meeting on Closing the Achievement Gap to, shall we say, somewhat less-than-enthusiastic response.

Senior Education Fellow David W. Kilpatrick of the U.S. Freedom Foundation recently published this note on Universal Tuition Tax Credits.

One of the successful efforts to implement school choice, especially for students from low-income families is the introduction Universal Tuition Tax Credits in states such as Pennsylvania and Arizona. The idea of direct tuition tax credits, whereby parents could receive credit for tuition payments, has been around for years but has not widely implemented. This is because it is not useful to parents whose income is so low they pay no or very little income taxes, or to those in states which have no or very low income tax rates.

Let me add here, that another reason is that the concept of a Universal Tuition Tax Credit has not been widely publicized outside education circles. Furthermore, the conclusion that Universal Tuition Tax Credits don’t benefit those who pay little or no tax depends on the plan. What I proposed at the MPR meeting was a true “Universal” Tuition Tax Credit available not just to parents of K-12 students, but to non-parents and businesses. Those without children would receive the same dollar-for-dollar tax credit as parents for designating a potion of their tax liability to support a specific student, a specific school or a contribution made to a K-12 scholarship foundation.

In other words, “Universal” truly means “everyone” and gives everyone and individual voice in the ways kids will be educated. It provides real school choice. Can it work? Kilpatrick says the evidence says "yes."

In Pennsylvania, where the courts have ruled that tax credits against personal income are not permitted, the original Educational Improvement Tax Credit (EITC) law in 2001 gave credits to corporations. Initially the maximum credit was 75% for a $100,000 contribution or 90% when a two-year commitment is made in advance. Contributions could be made either to scholarship programs, to a maximum cumulative total of $20 million or for innovative programs in the public schools, to a maximum total of $10 million.

Permissible limits have since been raised to $200,000 for contributions, $27 million for scholarships, and $13 million for innovative programs. By this past May, nearly 35,000 scholarships have been awarded, 20,000 in the past year alone. At that time there were 152 scholarship organizations and 198 education improvement organizations in the state. One result is increasing support from the public school sector.

Indicative of this support is that of the Superintendent of the Harrisburg schools in Pennsylvania's state capitol who has noted that more than 500 students in his district have benefitted from the EITC program. The state's new Secretary of Education, who also favors charter schools, has said he would like to see the credit programs expanded further. This although he was a public school superintendent prior to assuming his new post, he is serving in the administration of Democratic Governor Ed. Rendell, and that both the tax credit and charter schools programs were initiated by former Republican Governor Tom Ridge.

As in Pennsylvania, Arizona's program allows credits for both private ($500) and public ($200) school purposes. This past April the Department of Revenue said the school tuition tax credit program had helped more than 19,000 students in 2003. Not only is this more than predicted but from 2002 to 2003 the number of scholarships awarded grew by 21% and taxpayer donations by more than 11%. The 2003 growth rate was nearly double that of 2002. The state may save even more money than had been anticipated.

So if Universal Tuition Tax Credits are so good, why aren’t they more widely used?

Such tax credits are, of course, merely a variation of income credits that have been possible for years, such as a credit against gross income for contributions to a nonprofit group and, not least of all, for property taxes. Despite this long history, the two major teacher unions, have repeatedly gone to court to have such credits declared unconstitutional, arguing that this is public money that may not be used for religious schools.

So far, they are batting .000, losing all the cases that have been decided. The courts have held these are not public dollars since the government never receives the money from which contributions are made. Rather, it allows individuals or businesses to keep the money and decide for themselves how it will be used.
Some of the decisions have been unusually critical of the arguments opponents have presented. In addition, some judges have said that even if the contributions were deemed to be public dollars, they would still be constitutional since the scholarships are generally available for a wide variety of educational opportunities.

A few years ago, the Alexis de Tocqueville Institution hosted a meeting of some public school teachers from around the nation, most of whom are or have been members of the teacher unions. Also present were several members of Congress. All those present supported tax credits.
It seems clear that, ultimately, the merits of this cause will prevail.

Okay, Minnesota. Lead or follow. Choice is ours.