The following is based on Mackinac Center for Public Policy President Lawrence Reed's April 16, 2002, testimony before the U.S. House of Representatives Education Committee. It is being republished today to mark National School Choice Week.

Few issues are more important to the future of this country than the education of our children. My remarks today spring from a critical premise-a premise that we need reforms that will foster a new burst of individual and institutional involvement in the learning process, reforms that will create a truly vibrant, competitive, and accountable marketplace which attracts widespread, popular participation and enhances parental choice.

Soon, the U. S. Supreme Court will render an important decision regarding the choice program now in place in Cleveland, Ohio. All of us who believe in choice and want to see schools improve for everyone are hopeful for a positive decision that will affirm the program and the right of parents to choose which schools are best and safest for their children. But regardless of the Supreme Court's decision on vouchers, there is another promising form of choice that can be put in place now at the level of both federal and state governments-alongside vouchers or by itself.

Three Kinds of Education Reform

Everybody these days is a public school "reformer" because everybody knows that public education needs fixing at the very least. But not all education reforms are created equal. We believe that all reforms intended to improve the quality of public education fall into just three categories: those dealing with rules, those involving resources, and those concerned with incentives.

Rules-based reforms include such things as extending school days and the school year, changing teacher certification and school accreditation requirements, imposing national and state testing, enacting stricter dress codes, and the like. Research has shown that these reforms, while causing marginal improvements, have failed to turn around a large-scale decline in education. More drastic city or state "takeovers" of failing schools and districts and legislative proposals such as "Outcome-Based Education," "Goals 2000," and other regulatory regimes have been and still are being tried, with the same disappointing results. Most of these efforts have driven critical elements of the management of our schools beyond the reach of parents and local school governing bodies and concentrated large portions in remote bureaucracies.

Another attempted strategy to improve public education is through resource-based reforms. They include such measures as increased funding, new textbooks, wiring schools for Internet access, renovating or updating school facilities, reducing class sizes (fewer pupils per teacher), and other measures that require greater financial expenditures. They all derive from a decidedly unpopular source-raising somebody's taxes.

Scholars have studied the relationship between per-student spending and achievement test scores since the publication of "Equality of Educational Opportunity" (better known as "The Coleman Report") in 1966. Author James Coleman, a leading sociologist, concluded that factors such as per-pupil spending and class size do not have a significant impact on student achievement scores.

Economist Erik Hanushek and others have replicated Coleman's study and even extended it to international studies of student achievement. The finding of over 30 years of their research is clear: More money does not equal better education. There are schools, states, and countries that spend a great deal of money per pupil with poor results, while others spend much less and get much better results.

Despite this and subsequent findings, many lawmakers and educators continue to believe that additional resources and funding will somehow solve the problems within the government education system.

We have all but exhausted the "rules" and "resources" approaches to education reform, with little to show for our time and money. The one promising category left is "incentives." I am referring to incentives that will encourage more people to get involved, as parents and donors and friends of education-incentives in the form of tax credits specifically.

Tax Credits

Tax credits are designed to provide parents with tax relief linked to expenses incurred when they select a school other than the government-assigned one for their children. That typically means a private school, but tax credits can also apply to expenses charged by a public school that accepts a student from outside its regular jurisdiction. The credit is usually a dollar-for-dollar reduction in taxes owed (whereas a tax deduction is merely a reduction in taxable income).

Tax credits are typically applied against only state and/or federal income taxes, but property tax credits have been proposed as well. Tax credits might be allowed for any or all out-of-pocket educational expenses incurred by an individual, from tuition to textbooks to transportation to extracurricular fees-though tuition is the most common expense allowed in practice.

Tax credits don't represent a claim by anyone on someone else's wallet. You don't get the credit if you don't pay tuition or if you don't pay taxes. A credit on your taxes represents your own money, period. And credits can be extended not only to parents paying educational expenses but to other citizens or even companies that contribute to scholarship funds that assist children in getting access to the school of their choice, public or private.

Under a traditional credit plan, only a parent who pays private educational expenses for his child and who has a tax liability greater than the amount of the allowable credit will qualify. The problem with a traditional tax credit is that low-income parents who don't have the money to pay for a private school or have little or no tax liability will be left out in the cold. That deficiency could be remedied partially by making the credit "refundable," meaning the credit could result in a refund check from the government if your tax liability is low.

Another very promising form of tax credit is possible and now getting much attention across the country. My organization, the Mackinac Center for Public Policy, is nationally known for pioneering it and showing how it would work as applied to a particular state as early as 1996. We were the first to give it the name, "Universal Tuition Tax Credit" or "Universal Education Tax Credit," and the first to design such a plan for an entire state-Michigan.

Key to the "universal" education tax credit concept is that it allows any taxpayer-individual or corporate, parent or grandparent, neighbor or friend-to contribute to the education of any elementary or secondary child and then qualify for a dollar-for-dollar credit against certain taxes owed. Our original proposal called for an eventual cap on the credit of 50 percent of what the state spends per pupil in the existing public system, phased in over nine years in a fashion that generates a savings in the School Aid Fund every year as some families migrate from the public to the private system. The maximum credit would be more than enough to cover educational expenses at 90 percent or more of schools. More importantly, our proposal envisions scholarship funds supplied with private tax credit monies. These scholarship funds would be established by schools, companies, churches, and myriad private groups-spurred on by individuals and companies who want to help children get their schooling in the best and safest schools of their choice.

Would tax credits be sufficient to encourage businesses to contribute to education scholarship funds? Absolutely. After explaining the concept, I and others from the Mackinac Center staff have asked CEOs all over our state this question: "Suppose you had a choice. You could send a million dollars in taxes to Lansing or Washington for government to spend on any number of things. Or, you could send that million to one or more scholarship funds to help children who might be your future employees get a good education. Which would you do?" We've never met one who preferred the first option.

The popularity of tax credits among parents has exploded throughout the country in recent years. K-12 tax credits have passed state legislatures in Arizona, Minnesota, Iowa, Florida, Pennsylvania, and Illinois. Arizona Gov. Fife Symington signed into law a bill in April 1997 granting an income tax credit of up to $500 for people who donate to nonprofit groups that distribute private scholarships to students. The law also offered taxpayers a credit of up to $200 for money given to government schools to support extracurricular activities. Arizona expanded its program in 1998 to include tax credits for donations to both private scholarship programs and public schools. The end result so far has been tens of millions of dollars raised voluntarily to help give children more resources and more options.

Pennsylvania's legislature overwhelmingly approved an "Educational Improvement Tax Credit" (EITC) program that allows corporations to receive a 75% tax credit for donations to scholarship and educational improvement organizations. It becomes a 90% tax credit if the donor commits to making the same donation for two consecutive years. Within a few months of enactment, about $30 million in donations were committed over two years.

Last year, Florida passed legislation to provide tax credits to corporations that donate up to $3,500 (per pupil) to non-profit organizations which award scholarships to children from low-income families. The State saves money for its School Aid Fund or other purposes because it now spends $7,200 on each public school student while the corporate scholarship limit is $3,500.

Properly designed universal tax credit programs help drive the funding of education away from distant bureaucracies and put it in the hands of all citizens interested in improving education for everybody. It's a great way for every segment of society to get personally involved in education, especially when it's aimed at helping needy children. Universal education tax credit programs that involve contributions for all schools public or private can bring the diverse and sometimes disputatious education community together because they create winners without producing losers. They can make our school officials fundraisers instead of tax raisers and ultimately allow for better utilization of more resources for schools.

Michigan Congressman Peter Hoekstra is proposing federal legislation that would permit an education tax credit against federal income taxes owed of up to $500 ($1,000 for joint filers) for contributions to qualified scholarship funds or to local public schools for construction or technology. Corporations would receive a 75 percent credit, up to $100,000.

The Hoekstra proposal is a modest start that won't break the budget. It's a great way for the federal government to improve education without spending more, taxing more, or creating any more bureaucracies. It will send a strong signal that the federal government trusts parents. It will spur more charitable giving and a bigger education funding pie at the state and local level. And by not discriminating against private schools over public, or public schools over private, it introduces a new measure of fairness that just isn't in the system now.

Indeed, education is still overwhelmingly a state and local matter, and that's where groups and citizens should work to craft universal tax credit plans onto their existing tax and education infrastructure that have peculiarities of their own in each particular state. But the broad outlines are clear for every state-help parents, concerned citizens, and businesses help kids by giving them encouragement when they contribute to the costs of providing education. It's the right thing to do. It's the fair thing to do. It will galvanize and strengthen civil society by giving individuals and companies new incentive to assist the educational dreams of their fellow citizens. And it will bolster the incentives of all schools, public and private, to improve.

Thank you, Mr. Chairman, and members of the committee for your attention and consideration of these ideas.

Lawrence W. Reed is president of the Midland-based Mackinac Center for Public Policy, a research and educational institute.