Tax Credits Face Same Challenges as Vouchers

Published April 1, 2001

“Vouchers may have hit their peak in terms of acceptance. The real action to aid private schools will be in the tax route.”
Jack Jennings, Center for Education Policy
New York Times, February 1, 2001

“What you’re likely to see is the expansion of tuition tax credits. . . . I think we’re really standing at the end of the discussion about vouchers in his country.”
Ed Yohnka, American Civil Liberties Union
Newsmakers, AT&T Broadband, February 9, 2001

Following the decisive defeat of two voucher initiatives last November, school choice opponents now appear to be pushing the debate away from vouchers and towards education tax credits as a more palatable school choice option . . . even though vouchers primarily benefit low-income families and tax credits primarily benefit middle-income taxpayers.

While some school choice advocates also see tax credits as less vulnerable to regulation than vouchers, legislators are considering placing new limitations and regulations on education tax credits in Arizona and Minnesota. Since opponents have made it clear they regard anything that takes money away from public schools as a “voucher,” no school choice option is likely to be free of calls for additional regulation.

What’s a Voucher?

According to school choice opponents, a voucher is anything that could take money away from public schools. For example, National Education Association President Bob Chase gives the name “voucher” not only to school vouchers and scholarship programs but also to education tax credits and Education Savings Accounts. Democrat Richard Romero, President Pro Tem of the New Mexico Senate, provides some helpful insight into this broader definition of vouchers.

Romero recently proposed a bill that would allow schools, government entities, and private corporations to educate public school dropouts through a contract with the state Department of Finance and Administration. Since the proposal involved public money flowing to the private sector to educate students, it was tagged by opponents as a voucher program. Romero disagreed.

“It’s not really a voucher bill,” Romero told Associated Press reporter Deborah Baker. Explaining the program would be funded with new state money rather than money taken from the existing public education budget, he said, “It does put money in the private sector and it does have a [teacher] merit pay component, but it doesn’t take money away from schools.” [emphasis added]

Vouchers, on the other hand, “drain funds from public schools.” That’s what opponents Michael Apple and Gerald Bracey write in a recent report for the Center for Education Research, Analysis and Innovation at the University of Wisconsin-Milwaukee. They point out that the state funds received by a school typically are based on enrollment; as enrollment declines, so do the state funds.

Playbook for Defeating Vouchers

Marquette University professor Howard Fuller frequently has noted that voucher opponents have a three-phase strategy to defeat vouchers:

  • First, work to prevent the passage of voucher legislation.
  • Next, work to block voucher laws that pass by challenging them in court.
  • Finally, work to stifle voucher programs with added rules and regulations.

Pennsylvania, for example, still is in the first phase, where opponents have successfully blocked voucher legislation. Ohio and Florida are in the second phase, while Milwaukee is in the third.

Last fall, Wisconsin state schools superintendent John Benson created widespread disruption to Milwaukee’s voucher program by suddenly threatening to kick a number of schools out of the program. In February, he called for testing voucher students and monitoring religious activities in the schools.

For school choice options other than vouchers, the first action of opponents is to re-label the choice option “a voucher scheme.” Then the three-phase strategy can be brought into play.

For example, NEA’s Chase in February labeled Education Savings Accounts “a backdoor voucher scheme that funnels taxpayer money away from public schools to private and religious schools.” He said such accounts “disproportionately benefit affluent families and those with children already in private school.”

Also in February, when Governor Tom Ridge proposed a 50 percent tax credit for businesses that donate scholarships to private schools, Patsy J. Tallarico, president of the Pennsylvania State Education Association, labeled the credit “nothing more than another tuition voucher scheme, with the money laundered through businesses and corporations.”

In 1999, when tuition tax credits were approved, Illinois moved from phase one to phase two, and choice opponents now are conducting two parallel court challenges to the tax credit law. A court challenge is ongoing in Arizona as well.

The tax credit laws in Arizona and Minnesota are in phase three. Opponents are attacking the lack of regulation of tax credits in these two states, just as vouchers in Milwaukee are under attack on the same basis.


Although Arizona’s three-year-old tax credit law is costing the state just over one-third of what the state Department of Revenue predicted–$30 million a year instead of $80 million–lawmakers plan to take a close look at the program during this year’s legislative session. Concerns have been raised about some of the ways the program is being used. The law allows families to take a dollar-for-dollar tax credit of up to $200 in donations to public schools for extracurricular activities, or up to $500 in donations to organizations that award K-12 scholarships.

Last year, The Arizona Republic revealed that schools in poorer neighborhoods didn’t get many donations, while parents in more affluent areas used the donations to pay for their own children’s trips and activities. In addition, many donations for scholarships at private and religious schools apparently were used for students who already were enrolled. Tim Hogan, an attorney who successfully sued the state to equalize school funding, told the Republic the tax credits make inequities worse.


While previous calls for more restrictions on Minnesota’s four-year-old education tax credit program came from legislators, this year’s call comes from Governor Jesse Ventura, who wants to restrict the credit and put the money into a more general tax credit for low-income families. Currently, families with incomes less than $37,500 can use the credit to offset up to $2,000 of education expenses such as tutoring, textbooks, transportation, computer hardware and software, and summer academic programs.

In the two years following passage of the tax credit law, school choice advocates fought off legislative attempts to place onerous state regulations on the nonpublic schools that accepted students whose families claimed the education tax credit or a related education tax deduction.

Ventura has proposed two changes to the credit: First, to change the dollar-for-dollar credit to a 75 cents on the dollar credit; and second, to limit the credit to textbooks, up to $200 in computer costs, and instructional fees outside normal school hours and days. Transportation would not be covered. A large number of claims for the credit were disallowed after audits, according to the Minnesota Department of Revenue.

Limitations of Tax Credits

A recent study of $500 tax credit proposals for the state of New Jersey showed both the promise and the limits of using tax credits to promote school choice. While enabling students from middle-income families to attend the school of their choice, the impact diminishes with income since families must first pay taxes to take advantage of the credit.

“A typical low-income family pays just $210 a year in state income taxes [in New Jersey], so it would ‘zero out’ its entire tax liability well before reaching the $500 cap,” concluded Heartland Institute President Joseph Bast, who conducted the analysis. Most families don’t pay enough state income tax to make an education tax credit a widespread empowerment tool, especially among the poor.

Even the federal income taxes paid by a majority of U.S. families are still less than the median private high school tuition–$4,166 in 1997, according to the U.S. Department of Education. Seventy percent of U.S. tax filers paid $3,970 or less in federal income taxes in 1997 on incomes under $50,000 a year, according to data published by the National Taxpayers Union. Almost half–46 percent–paid $2,058 or less on incomes under $30,000. In 1997, the median private elementary school tuition was $2,115.