Parental vs. Third-Party Payment

GC: Why is having families pay something for the education of their children such a deal-breaker?

Whether or not it is a deal breaker is up to each voter, policy-maker, and school reformer to decide. I personally stress the importance of direct parental financial responsibility so vigorously for two reasons: first, it is perhaps the single most consistent factor associated with educational quality internationally and historically, and second, because most "school choice" reforms do not currently take it into consideration.

As I point out in my chapter in the Cato Institute book Educational Freedom in Urban America, the behavior of government-funded private schools tends to diverge from that of parent-funded market schools. India, for example, has government funded private schools and the consensus of the econometric research shows them to be less efficient, less effective, less responsive to the curricular demands of families and enjoying less autonomy than that nation’s fee-charging private schools (I cited this evidence in Forging Consensus). The Netherlands has a national voucher system and it is so heavily controlled now from the center that it now resembles a large-scale public school choice program in the United States: state-mandated curriculum, state-mandated tests, profit-making is forbidden, the government can force mergers and closures of voucher schools, etc.

That said, some families cannot afford to assume a substantial portion of the cost of their children’s education. Those families need financial assistance. I argue in Forging Consensus and elsewhere that the best way of serving these low-income families is to provide them with multiple scholarship-granting organizations (SGOs) from which they can seek scholarships, and that SGOs should have the discretion to set very low co-payments, or to waive them entirely, when such a course is dictated by a particular family’s situation.

GC: The quote from Pliny [on page 11] is illuminating but I think you draw the wrong conclusion. Again, I am not in favor of the tax-supported K-12 education system that we have constructed in this country but I regard it as a fact of life, something that we must make the best of unless we want to take on — as Marshall Fritz apparently does — the task of changing 50 state constitutions to remove the education provision. Life's too short.

Pliny: "People who may be careless about another person's money are sure to be careful about their own, and they will see that only a suitable [teacher] shall be found for my money if he is also to have their own."

My take from this is the same as yours: make parents assume direct financial responsibility for their children's education. However, given that K-12 education is currently provided "free," the aim in the short-term should be to make K-12 education funds appear to parents to be their own money [which, for most taxpayers, it really is]. Giving the average parent a voucher worth $5,000-10,000 is a lot closer to having them spend their own money than having their children assigned to a school that's already got the $10,000. It would be a huge step for parental choice.

Appearances can be, and in this case are, deceiving. In situations where lightly regulated parent-funded private schools can be compared to fully-government funded private schools, such as India, the former tend to outperform the latter across a host of measures, from academic performance, to cost-effectiveness, to the responsiveness of the curricula they teach to parental demand. Government-funded private schools in India are hard to distinguish from conventional government schools in both curriculum and quality. It doesn’t matter, in practice, that the government money follows the school choices of the parents. Based on actual international experiences, vouchers are not equivalent to direct parent funding. The fact that so few American voucher supporters are aware of these foreign experiences with government-funded private schooling was one of the motivations for writing Forging Consensus.

On your other point, the idea that maximizing parent funding is legally impossible in practice, or at least far more difficult to achieve than a voucher system, I’m not so sure. I haven’t done an exhaustive survey of the education clauses of all the state constitutions, but the ones I have looked at don’t pose an obviously higher barrier to UETCs than to universal vouchers. The vague ones, like that of Massachusetts, would clearly permit both programs, and the highly elaborated ones, like that of Florida, could at least be argued to prohibit both (Article IX of Florida’s constitution explicitly defines a system of local school boards, school districts, and other aspects of a traditional government school bureaucracy that would seem incompatible with any universal market education reform).

I don’t know how many state constitutions there are with education clauses that would somehow forbid UETCs but allow universal vouchers, but I doubt it is the majority. And, as I argue in Forging Consensus, there are religion clauses in most state constitutions that do exactly the opposite: make it harder to pass vouchers than to pass UETCs.

GC: I'm puzzled as to why you would regard homeschoolers as likely to be "thrifty" with their tax credited earnings while you regard voucher parents as less competent individuals who would not be thrifty with their banked surplus voucher funds — or so gullible that they'd give it to the first charlatan that came along.

Milton Friedman has said that people are most careful when they spend their own money on themselves, less careful when they spend someone else’s money on themselves, and least careful when they spend someone else’s money on a third party. This is not only consistent with Pliny’s 2,000 year old statement on the subject, it is consistent with the evidence of the intervening centuries as well. Personal use tax credits allow taxpayers to keep more of their own money to spend on themselves, and so benefit from the greatest degree of care. Voucher parents are spending someone else’s money on themselves, and so will be less careful.

Secondly, I am not suggesting that voucher parents will be "gullible." What I’m saying is that many if not most parents and education service providers would collude to game the Heartland system (i.e. voucher surplus savings accounts) because parents would want to ensure that they use up every ounce of Other People’s Money (OPiuM) to which they have access. In the example I gave, parents could use voucher surplus money to buy marked-up computers from their schools, and both parents and the schools would benefit. Only taxpayers would lose. Schools would benefit because they would make a tidy profit, and parents would benefit because they would have gotten taxpayers to buy them a new computer (which they could then keep, give away, or re-sell). A school could well compete by having a tuition below the voucher amount and then allowing the purchase of a new computer every year. A few minutes on e-bay and the parents could translate the unneeded computers into cash.

No matter how large the voucher, parents and education service providers could, and I argue would, collude to ensure that both profited to the maximum extent possible from the Heartland plan’s voucher surplus accounts, and the system would thus not control costs as is claimed.

GC: Under "Financial Responsibility for Parents" and under "Cost Control," both discussions leave out the possibility of designing the program to provide incentives for parents to make the most productive use of the funds at their disposal — as the Heartland Voucher Plan does. However, it should be noted that whether we are dealing with a tax credit plan or a voucher plan, the poor do not have to pay additional funds under either plan….

The dismissal of the incentive component of the Heartland Plan seems a little too facile. This particular feature does seem to me to provide a real incentive for parents to shop around for the best deal. To get technical, if we're dealing with middle-income taxpayers, then what they are getting in a voucher certainly isn't "Other People's Money," it's "Their Own Money" being returned to them for direction in its use. But whether it's OPM or TOM doesn't matter --- it provides a mechanism for parents to get the "best buy" in education. It doesn't matter whether they are judicious in the use of these surplus funds or not. The key is: Schools can't get at them unless they persuade the parent to "spend" them. Now, I don't subscribe to the belief that most parents aren't smart enough to make good decisions about the use of voucher funds placed at their disposal. That's an argument I'd expect to hear from voucher opponents. The fact that parents can keep their hands on some of the voucher money means that the rest of the system is forced to be more efficient. If taxpayers see the accounts being built up to ridiculously high levels — as there certainly would be if parents received the current spending of $11,000 per student per year — then they would be much less inclined to vote for higher spending on K-12 education. That would be another cost-control mechanism. And so the surplus account serves many purposes. If there is no money left over at the cutoff date, what does it matter as long as the accounts help the system be more efficient?

Parents are not stupid. Most will spend the voucher funds wisely. Taxpayers are not stupid, either. If they see lots of parents who are able to pay for four years of college with leftover funds intended for K-12 education, taxpayers will seek to limit spending on K-12 education.

I don’t ignore this proposal, I conclude (pages 40-41) that the Heartland plan is incapable of achieving its intended aim of controlling costs and argue that it would increase fraud relative to other voucher and tax credit programs. Readers can make their own judgments. Under the optimal UETC program I describe, SGOs would have the discretion to set their own co-payment requirements on a family-by-family basis. This would not be possible under a statewide government voucher program.

GC: Having rejected the idea of providing incentives for consumers to shop around for the best value (i.e., the Heartland Plan, or some variant), this section is free to say a voucher plan would produce higher and higher costs just like the existing system. I don't accept your argument that vouchers would inevitably involve a built-in mechanism for ever-increasing costs since I don't accept your arguments against an incentive savings account.

This is useful, and is precisely the sort of disagreement I hoped to elicit. Readers can consider my criticism of the Heartland Plan as it appears in Forging Consensus, GC’s response, and my clarification, and then decide for themselves. If my criticism of the Heartland Plan holds, then so, arguably, does my criticism of vouchers as potentially ineffective in controlling costs.

GC: Maybe we should ask Milton Friedman how he thinks education providers would likely respond to his insight of about a year ago, where he suggested we should start thinking of a voucher in terms of an education budget which could be spent in portions on different providers of different educational services, just like a clothing budget. Although you say it is difficult or impossible for vouchers to permit purchasing services from a range of education providers, this is because it's a new idea and needs to be thought through. However, a disaggregated fund is the way we need to view vouchers, not as a single purchase. Disaggregating vouchers would in fact make vouchers similar to tax credits and make it so we could use the same arguments you use to favor tax credits to also favor vouchers — i.e., private schools would not have the same incentive to lobby for larger vouchers because they wouldn't be getting all of the voucher money anyway.

I’m arguing, for the reasons stated above and in the paper, that this cannot be done with OPiuM (Other People’s Money) without engendering an excessive risk of fraud. Once again, we don’t spend other people’s money as judiciously as we spend our own. Pliny observed this 2,000 years ago, Milton has repeatedly pointed it out, and we would do well to acknowledge it.

GC: I grant the argument that tax credits are not public money but I do not see this as the view of the public or of legislators, thus making the argument moot.

It is patently not moot, having proven pivotal in overcoming the lawsuits filed against the programs in Arizona and Illinois. You mentioned the public and legislators but ignored the courts. It is in the legal system that opponents of educational freedom seek most aggressively to strike down or hobble parental choice programs. The advantage of tax credits over vouchers on this battlefield is well and repeatedly proven.

The exclusive use of private voluntary funds under tax credit programs is also what avoids the socially divisive compulsion that exists in voucher and traditional public school systems, another dramatic advantage.

GC: The argument that higher tax credits would not necessarily accrue to private schools assumes that the ingenuity of education con artists — who would strip every last cent from a voucher account — would somehow fail when faced with a tax credit plan, where parents would be left with enough money to spend on other education options.

As I have explained above, and as Milton Friedman has himself argued, there is a stark difference between how people spend their own money and how they spend other people’s money. Under the Heartland Plan, parents would have an incentive to collude with schools to use up every ounce of OPiuM because both would profit from doing so. Under personal use tax credits, all the money already belongs to the parents in the first place. It would be self-destructive, for instance, for homeschoolers to buy overpriced computers from their education service providers because they would waste their own money by doing so. That is decidedly not the case with Heartland vouchers, which would allow them to waste Other People’s Money.

To use another example, this time a real world example, many public schools and at least one voucher school (Mandella School of Science and Math[1] in Milwaukee) have billed taxpayers for students who either did not exist or were not eligible for state funding. This is most unlikely to happen when parents directly pay for their own children’s education, as they do under personal use tax credits, because it would be difficult to convince parents that they have additional fictitious children:

"Honey, do we have a child named Hugh Jahripov?"

"No, dear, we don’t."

"Well, I don’t think I’ll pay this school bill then."

Donation tax credits, like vouchers, do not provide this same level of protection from fraud, and that is one reason I have argued that SGO scholarships should be limited only to those who need them, rather than universally available. Nevertheless, the multiplicity of SGOs that exist under UETCs provide a recourse for taxpayers when fraud is suspected or actually occurs – they can redirect their donations to a different SGO. Taxpayers would have no choice but to keep on paying in to a corrupt voucher or public school program, because there is ever only one such program in any given jurisdiction.

[1] See: http://www.jsonline.com/news/metro/feb04/208954.asp