The following are several examples of how the UTTC would work. These examples are based on an average per-pupil public school revenue of $6,000, yielding a maximum credit amount of $3,000. These examples also assume that the maximum credit is fully implemented, which would only occur nine years after the UTTC was adopted. Until that time the actual maximum tax credit would be much smaller.
Mary Smith, a single mother of two with family income below the federal poverty level, lives in inner-city Detroit. She wants to take her children out of the public schools because of the lack of achievement her children are experiencing. She would like to send them to a local Catholic school known for emphasizing discipline and academic achievement. Luckily, ACME Motor Company, a large automobile manufacturer, has established a scholarship program for such families. ACME Motor’s "Educational Hope Program" pays the entire tuition for both children ($2,000 per child) and the company takes a $4,000 credit against its Single Business Tax liability. ACME Motors advertises this program, which earns it much national and community goodwill. The program has cost ACME Motors nothing but the promotional expenses it chooses to incur.
James and Patty Williams like the "Gifted and Talented" program offered by Our Town Elementary, a public school located in a school district other than the one in which they live. They feel their son, a very bright and energetic learner, is not sufficiently challenged by the local school program. However, they are required to pay an additional $2,000 to send their child to the public school outside their district because the local school superintendent will not release the funds. James and Patty—whose family income is above the poverty level and whose Michigan Individual Income tax liability is $3,000—can take a $1,600 credit (80 percent of $2,000) against their tax bill, paying only $1,400 in income tax. (Based on an actual Michigan case.)
Robert Doe, a wealthy real estate developer living in Oakland County, pays $15,000 each year to send his only child to the Cranbrook Academy, a private school. He takes a tax credit of $3,000 against his state Individual Income tax liability ($15,000 x 80 percent = $12,000, which exceeds the $3,000 cap). This is the maximum credit amount any taxpayer—or combination of taxpayers—may claim per student. Therefore, it costs Mr. Doe $12,000 per year instead of $15,000 to send his child to the alternative school.
Robert Middleclass, a middle-income auto worker living in Kent County, pays $4,000 each year to send his only child to the Gifted Science Academy, a private school. He takes a tax credit of $3,000 against his state Individual Income tax liability ($4,000 x 80 percent = $3,200, which exceeds the $3,000 cap). Therefore, it costs Mr. Middleclass $1,000 per year instead of $4,000 to send his child to the alternative school.