Vouchers or Tax Credits for Full School Choice?

Published June 1, 2001

Which is the better vehicle for implementing full school choice for children: vouchers or universal education tax credits? A recent Cato Institute policy paper, “Toward Market Education: Are Vouchers or Tax Credits the Better Path?” informs the debate on this question.

Researcher and author Andrew J. Coulson, best known for his 1999 opus Market Education: The Unknown History, analyzes which school choice policy proposal would best serve both individual needs and communal goals for education.

In Market Education, Coulson identified six key conditions present where educational excellence and opportunity have flourished in the last 2,500 years: parental choice, direct parental financial responsibility, freedom for educators, competition among schools, the profit motive for educators, and universal access to the education marketplace. In “Toward Market Education,” Coulson assesses how well both vouchers and universal education credits meet these criteria, and concludes tax credits are the superior option.

Tax Credit Advantages

The tax credit Coulson assesses is a universal education tax credit, whereby any taxpayer can claim a dollar-for-dollar tax credit for K-12 tuition, within certain limits. Parents can claim the credit against their own tax liability, and all other taxpayers, including corporations, can claim a credit for contributions to private scholarship-making organizations. This differs from a traditional tax credit in which only parents may claim a credit for tuition paid for their own children.

Since the universal credit is dollar-for-dollar, an individual or corporation can make tuition contributions at no cost. This provides a powerful incentive to do so, especially when both the educational value and public relations value are considered.

Voucher Disadvantages

Coulson finds both advantages and disadvantages with vouchers.

Vouchers successfully meet the criteria for effective education in many ways, including parental choice and student access to schools, as well as freedom, competition, and the profit motive for educators.

However, the key element of direct parental financial responsibility is absent when the government pools tax money and redistributes funds to parents via vouchers. Coulson notes this is particularly problematic because historically the interests of parents who have not paid for their children’s education have been ignored.

Policy experts identify additional problems with vouchers that go beyond the scope of Coulson’s consideration in “Toward Market Education.” Most troubling is the potential impact of government regulation on independent schools. Many fear that once government funding is widespread, private schools could become almost indistinguishable from their government school counterparts, or could be forced to close due to loss of students. The process could occur as follows.

First, even though participation in a voucher program may be voluntary, the vast majority of private schools would, in effect, be forced to accept them. Parents would demand the immediate and significant financial relief vouchers provide from unassisted tuition payments for one or more children. It would be extremely difficult for a private school to pass up the allure of “free” money and the opportunity to make schooling less expensive for its families. Private schools would therefore become increasingly dependent on voucher revenue.

Second, as private schools increasingly accepted government funding, legislatures would respond to increasing calls for state oversight. Many people believe that if the state is transferring public funds to a person or organization, the state should have strict oversight of how that money is used. As the saying goes, “Government shackles follow government shekels.” New regulations would challenge the operation and autonomy of previously independent schools. With schools dependent on voucher revenue, few would be able to wean themselves when government regulation becomes invasive.

Finally, the regulatory ratchet effect would decrease the autonomy and diversity of private schools and could force many to close. Regulations would force schools to conform to government-established curricula, teaching and testing methods, religious practices, employment policies, and so on. The initial benefit of competition between schools due to vouchers would then diminish as government regulation forced private schools to become one-size-fits-all institutions as it has traditional government schools.

Most private schools, however, exist to be unique, and many will avoid regulations by refusing to accept vouchers where that option is permitted. Few, however, would be able to do so and remain financially sound as parents succumb to the lower effective cost of voucher-accepting schools.

In comparing universal education credits to the six criteria for effective education, Coulson concludes they “appear on the balance of evidence to offer the best hope for bringing educational excellence within reach of all families.” The key advantage of universal education credits is that they restore to the family the responsibility of educating children.

Coulson notes that in addition to including direct parental financial responsibility, universal education credit programs avoid the use of public money.

“Since all the money involved in these programs is privately and voluntarily spent, issues of church-state entanglement and necessary public oversight of public spending are rendered moot,” he writes. “Because of the greater resistance to regulation that follows from the absence of state funding under tax-credit programs, those programs do a better job of protecting all the criteria for effective markets from regulatory encroachment.”

Universal Access?

Coulson notes that vouchers, by their nature, easily provide sufficient funding for all students. He is convinced, however, that universal credits also would provide universal access to good schools. Current universal education credit proposals, such as the “Universal Tuition Tax Credit” crafted by the Mackinac Center for Public Policy in 1997, have been designed explicitly to provide scholarship funds for children from families that have little or no tax liability.

Coulson recommends reformers embrace school choice proposals that best meet the conditions necessary for effective education in both the short-term and long-term. The failure to adopt sound school choice policies could plunge our private schools, as well as our public schools, into the same conundrum tomorrow that we find ourselves in today.

Matthew J. Brouillette and Joseph P. Overton are director of education policy and senior vice president, respectively, of the Mackinac Center for Public Policy.

For more information . . .

The Cato Institute’s February 2001 Policy Analysis No. 392 by Andrew J. Coulson, “Toward Market Education: Are Vouchers or Tax Credits the Better Path?” is available on the Internet at http://www.cato.org.

The Mackinac Center for Public Policy’s November 1997 policy study by Patrick L. Anderson, Richard McLellan, Joseph P. Overton, and Gary Wolfram, “The Universal Tuition Tax Credit: A Proposal to Advance Parental Choice in Education,” is available on the Internet at http://www.mackinac.org.