Universal Tuition Tax Credits
One of the more recent, and successful, options to implement school choice is the use of universal Tuition Tax Credits.
The idea of direct tuition tax credits, whereby parents receive a tax credit for tuition they pay, has been around for years but proved difficult to implement because of inherent problems. One is that it is unavailable to parents whose income is so low they paid no, or little, income taxes. Another is that it is inapplicable even to families with higher income levels in states with no or low income tax rates.
As a result, direct tax credits have not been adopted. An attempt was made by the Reagan administration to do so in the 1980s. That administration also failed in an attempt to convert Title I money into scholarships or grants to students rather than to school districts.
While specific details may vary, universal tuition tax credits apply to contributions to nonprofit (501)(c)(3) scholarship organizations which then give grants to students to enable them to attend the school of their choice.
Commonly the tax credit may apply to personal income taxes but there are variations. In Pennsylvania, for example, the state constitution prohibits tax credits being applied to personal income taxes. Therefore, the law there permits such credits for contributions by corporations, which may contribute up to $100,000 per year and receive a 75% credit for one year or 90% if a two-year commitment is made in advance. Applying such credits to corporations also would be useful in states with low personal income taxes.
Receiving credit for contributions to nonprofit corporations have been a common practice for years The difference is that the historical credit applies to income, not directly to taxes. Thus a $1,000 contribution deducted from income with a 30% tax rate would save the donor $300 while one applied directly against taxes could reduce taxes the full amount of $1,000.
Despite this long history, members of the educational establishment, in particular the two major teacher unions, the National Education Association and the American federation of Teachers, have repeatedly gone to court to have such credits declared unconstitutional, arguing that this is public money that may provide scholarships to students attending religious schools.
The NEA and AFT are batting .000. The courts have ruled this is not public money because government never receives any of it. Some court decisions were sharply critical of the reasoning of the plaintiffs. There was also the argument that the scholarships would be constitutional in any event since they were generally available for a variety of educational opportunities.
The icing on the constitutional cake came in June of 2002 when the U.S. Supreme Court, in its Zelman decision regarding Ohio's Scholarship and Tuition Program for Cleveland, ruled that such scholarships are not a violation of the federal Constitution even if religious schools are among those chosen by students.
Following the success of universal tuition tax credits in states such as Arizona, Illinois and Pennsylvania, the idea was introduced in Congress. A number of bills have been introduced in recent sessions to allow for such credits to be applied against federal taxes. Given the level of the federal income tax establishment of a federal universal tuition tax program could have significant and far reaching effects.
One of the leading Congressional proponents of this approach has been Rep. Peter Hoekstra (R-MI) who is a leading member of the Education and Workforce Committee and a subcommittee chairman. Despite support from a number of his colleagues, significant progress with such a federal program has not been forthcoming. One positive: Congress recently succeeded in establishing a tuition voucher program for the District of Columbia schools. This had passed both the House and Senate a few years ago but then-President Bill Clinton vetoed it. It took the arrival of a more receptive administration before the proposal could pass once more.
The District of Columbia voucher program should be in place by the start of the coming school year. With that issue resolved, and the demonstrated success of universal tuition tax credits in several states, it may be time for Congress, and other states, to seriously consider this additional approach to school choice.
"The authority of those who teach is often an obstacle to those who want to learn." Cicero, p. 11, Selections from the Essays of Montaigne, NY: Appleton-Century, 1948.
David W. Kirkpatrick is a Senior Education Fellow with the U.S. Freedom Foundation and The Buckeye Institute.
