Universal Tax Credit Proposed for Michigan Schools

Published January 1, 1998

With a universal tuition tax credit for K-12 education, Michigan taxpayers could save as much as $3.4 billion in education expenses in the first ten years of implementation, and over a half billion dollars each year after that, according to a proposal unveiled on November 14 by the Mackinac Center for Public Policy. Those savings could be used to reduce taxes on Michigan citizens and businesses, support additional educational programs, or address other budget priorities.

“As parents choose schools for their children, the schools they leave behind are forced to improve in order to compete . . . thus improving the entire educational system,” note the authors of the November 1997 study, “The Universal Tuition Tax Credit: A Proposal to Advance Parental Choice in Education.” The market system, they contend, “can offer diversity in the type of education offered to students as well as improved quality of the schools.”

Under the Mackinac plan, a direct dollar-for-dollar tax credit would be made available for up to 80 percent of the tuition paid to any Michigan elementary or secondary school–public, private, or religious. The first-year credit would be capped at 10 percent of the per-pupil tax revenues provided to Michigan public schools–currently $5,600 a year– but the cap would increase 5 percent a year to a maximum of 50 percent at the end of a nine-year phase-in period.

Thus, if the plan had been introduced this year, the maximum credit available would be 10 percent of $5,600, or $560. In nine years’ time, the maximum tax credit would rise to 50 percent of per-pupil revenues–$2,800 if revenues were still $5,600 per pupil.

A unique feature of the tax credit is that it may be claimed by any Michigan taxpayer who pays tuition for a student–individual or corporate, parent or grandparent, relative or friend. A large company, for example, could pay $2,000 tuition for each of 1,000 low-income children and receive a $2 million tax credit.

“It is likely that there will be an excess demand for students to which to provide scholarships,” said Dr. Gary Wolfram, member of the Michigan State Board of Education and professor of political economy at Hillsdale College. Because of the strong incentives for businesses in Michigan to provide scholarships for children in low-income families, “Nearly any business would put as much of its tax liability into a scholarship program as it can,” he noted.

The study, which includes an economic analysis of the proposal and the complete language of a required constitutional amendment, estimates that public school enrollment would decline by approximately 100,000 pupils to 1.5 million over ten years. That would mean significant savings for the state, since every student who transfers to an alternative school produces net savings of at least half of the per-pupil revenues.

Michigan already allows a tax credit for college tuition expenses, noted Joseph P. Overton, senior vice president of the Mackinac Center. Overton co-authored the study with Wolfram, Patrick L. Anderson, president of the Anderson Economic Group consulting firm, and Richard McLellan, senior member of the Dykema Gossett law firm.

“Tuition tax credits are good for 18-year-old college students, and they will also be good for 18-year-old high school students,” said Overton.

George A. Clowes is managing editor of School Reform News. His email address is [email protected].