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Education Tax Credits

Opponents of public schools have developed an alternative to vouchers that can funnel state revenue to private schools: tuition tax credits.
After voucher proposals failed in dozens of states, school privatization advocates devised a tactic that they hoped would be less controversial and more constitutional. The strategy promotes state legislation to grant tax credits for contributions to nonprofits that offer private school scholarships. Taxpayers already receive a deduction for contributions to charitable organizations, but these tax credits provide a much larger tax break. Since 1997, Arizona, Florida and Pennsylvania have enacted tuition tax credit legislation.
Tax credits for private school scholarships drain state revenues.
Arizona’s tax credit program costs the state about $60 million per year. Although Pennsylvania and Florida established caps on the dollar value of tax credits, those states could end up giving away tax revenues of more than $130 million per year. It makes no sense for states to give away tax revenues after budget constraints have forced them to slash programs, including appropriations for public schools.
Tuition tax credits primarily subsidize students who already attend private schools.
Despite being touted as a way to help low-income parents “choose” a private school for their children, the scholarships primarily subsidize current private school students. In Arizona, 76 percent of state revenues diverted to fund private school tuition scholarship groups went to families whose children were already enrolled in private schools. Only 19 percent was used to fund students who moved from public to private schools. The remaining five percent was applied to the administrative costs of scholarship groups.1 A 2002 analysis of the Pennsylvania program found that middle- and upper-income families receive the majority of its proceeds.2
Tax credits have no impact on student achievement.
Many students are ineligible or unable to attend private schools because of restrictive admissions standards based on academic performance, religion, sex, disability, and other factors. Private schools choose the students they want—not the other way around. There is no empirical evidence that transferring from public to private school improves student achievement. In fact, a 2006 federally-funded analysis of 340,000 National Assessment of Educational Progress (NAEP) scores—referred to as the nation’s report card—showed that public school students outperform their private or charter school counterparts when controlling for demographics.3
Tuition tax credit programs are characterized by a lack of state oversight.
In its 1998 report to the legislature, the Arizona Department of Revenue could verify only 53.8 percent of the tax credits claimed by individuals who reported that they’d donated to scholarship-granting organizations. Florida’s chief financial officer discovered several flaws in his state’s tax credit program during a 2003 audit. These flaws included inability to verify financial information, eligibility of applicants, or school attendance. Legislative recommendations to improve accountability have not been enacted.4
Americans reject the use of public funds for private schools.
Despite three decades of effort by individuals and groups to privatize elementary and secondary schooling, Americans still oppose private school vouchers and tax credits. A September 2005 Gallup poll found that a majority opposes “allowing students and parents to choose a private school to attend at public expense.” By a two-thirds majority, Americans prefer improvements to the public school system to funding alternatives.5

This policy summary relies in large part on information from the National Education Association.

Endnotes
  1. Glen Wilson, “The Equity Impact of Arizona's Education Tax Credit Program: A Review of the First Three Years,” Arizona State University, 2002.
  2. Nancy Everett and James E. Wilkerson, “Tax law little aid to poor students,” The Morning Call (Allentown, Pa.), Aug. 4, 2002.
  3. Christopher Lubienski and Sarah Lubienksi, “Charter, Private, Public Schools and Academic Achievement: New Evidence from NAEP Mathematics Data,” University of Illinois, January 2006.
  4. Tom Gallagher, Chief Financial Officer for the State of Florida, “Audit of the Corporate Tax Credit Scholarship Program,” December 2003.
  5. Gallup Poll of Public Attitudes Toward the Public Schools, September 2005.
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