Tax Credits More Susceptible to Regulation than Vouchers – G.C.

GC: Since vouchers have been in more battles that tax credits, they look more battle-weary, while tax credits look fresher since they've not seen much combat. However, the fire that has been directed at tax credits has been much easier for opponents to target and has been much harder for supporters to return. And that's even before tax credits have been applied to property tax revenues for schools.

In general, tax credits are too young to have produced the negative barrage that vouchers have attracted, but if the past year in Florida is any indication of what the future holds for tax credits, it appears they are much more susceptible to additional rules and regulations — which Milwaukee and Cleveland vouchers have largely averted.

Yes, there’s huge pressure on Florida’s donation tax credit program, but your observation is selective and unrepresentative. In particular, you are ignoring Arizona and Pennsylvania and failing to consider the complete picture in Milwaukee and Cleveland. The Milwaukee and Cleveland programs are already extensively regulated in ways that grossly interfere with market dynamics. Voucher schools in those cities cannot apply their own admissions policies: enrollment is not a mutually voluntary contract between the family and the school, as is the case in a free market. Voucher schools must accept students on a random lottery basis, which impedes the specialization and division of labor that are at the heart of a market’s effectiveness.

In Cleveland, voucher schools must be "chartered" by the state, and the requirements for charter status can be changed by the state at any time. Like other private schools in Ohio, they must administer government tests. They have to be either members of a government-approved accrediting body or they have to use the government curriculum. The length of the school day and school year at voucher schools must be equivalent to that of the public schools.

In Milwaukee, religious voucher schools cannot insist that all students participate in religious instruction, and vouchers must be accepted as full payment of tuition. These are much more heavily regulated programs than Florida’s corporate donation tax credit, and may well remain so even if Florida’s program is saddled with new regulations.

The donation tax-credit programs in Arizona and Pennsylvania attach fewer and less intrusive regulations to the content and operation of private schools than do the voucher programs of Milwaukee or Cleveland, or, for that matter, of Vermont or Florida (the A+ voucher program).

The 1st Amendment Protects Religious Schools from Government Regulation – G.C.

GC: The encroachment of the state into Dutch private schools would not be repeated in the U.S. if religious schools are included in the mix of private schools that may participate in a voucher program. The First Amendment acts as a sword to keep the state from directly funding religious schools but it also acts as a shield to protect religious schools from "excessive entanglement" in rules and regulations promulgated by the state. Milwaukee provides a good example of how this works in practice to keep the state Department of Public Instruction out of the affairs of private schools. Dutch private schools have no such shield, nor do Church of England public schools in the UK, since that's where there is a real establishment of religion.

This is an interesting and novel argument, but the evidence does not support it. There are already cases of the state intruding into the academic operations of religious schools in the United States. In Ohio, all private schools, including religious ones, must administer the state-mandated Ninth Grade Proficiency Tests. In 2007, this will be superseded by a requirement that all private schools, including religious ones, administer a state-mandated graduation test. The state will thus be driving the curriculum and setting the graduation policies for both religious and non-religious private schools.

Ohio’s meddling in the content of private religious schooling has yet to be challenged on First Amendment grounds. If it were, there is no reason to believe the challenge would be successful. The Supreme Court would almost certainly accept the argument that the state’s testing rules are imposed equally on all schools, and so do not single out, and hence do not become excessively entangled with, religious schools.

Ohio is a rare case today precisely because private schools rarely receive government funding, and so the justification for such extensive government intrusion is limited. Were universal vouchers introduced, that finger in the regulatory dyke would be withdrawn, and Ohio would quickly have a lot of company.

Milwaukee, today, is still a tiny and historically recent trial balloon. Were it expanded into a state-wide program the pressure to impose extensive curriculum and testing requirements would inexorably mount. In fact, the current proscription against religious voucher schools making religious instruction mandatory is a clear indication that vouchers provide no special protection from state interference.

Tax Credits Necessitate Audits – G.C.

GC: Problems with tax credits:

  1. They require audits of businesses to ensure they are entitled to the credit.

  2. They require audits of individuals to ensure they are entitled to the credit.

  3. They require audits of the student's family to ensure the family is entitled to a scholarship.

None of these audits is necessary with vouchers: Taxing authorities already make sure corporations and individuals pay their taxes, and K-12 students simply have to register with the local school to establish entitlement to a free education, whether at the public schools or with a voucher.

On what basis to you assume this? As I understand it, many tax credits are routinely claimed without automatically flagging a return for an audit, so why do you suppose that UETCs would lead to automatic audits?

What About "Tax Credits in Practice"? – G.C.

GC: Although the section on vouchers contains an exposition of vouchers "in practice," there is no such discussion in the tax credit section, and so it is just an exposition of theory, not "Tax Credits in Theory and Practice." There's quite a bit of information now coming in from Florida and from Arizona regarding how tax credits can successfully be attacked and hobbled by the opposition (and a few newspapers which call all school choice programs "vouchers"). Are there any examples of tax credits in use in other countries?

The "in practice" portion of the title refers to the data tables on existing U.S. programs, which are presented for both tax credits and vouchers. I know of no examples of foreign education tax credit programs.

Admissions Policies – G.C.

GC: A random lottery or a first-come-first-served protocol for admissions would be a slow kiss of death for any kind of choice program. Most public schools in large districts have selective admissions right now and private schools should demand access to the same admission policy. Private schools should not support any voucher program that does not permit them to set admission requirements and to establish their own curriculum and choice of recognized outside test.

I agree. However, I don’t see such a voucher program passing. Thus far, it has been easier to pass education tax credit programs that do not limit the admissions policies of private schools than it has been to pass voucher programs without such limits. Most existing voucher programs do impose a random admissions lottery or its equivalent.

Florida Shows Tax Credits Are Vulnerable – G.C.

GC: As events in Florida over the past few months have shown, when opponents control the language of the debate, it doesn't matter what the courts say about a tax credit not being "public money." In Florida, tax credits are called vouchers and they are viewed as public money. As a result, the tax credit programs — parents, students, and schools — are coming under increasingly onerous regulations. With tax credits, there is no constitutional shield to protect schools from additional entangling regulations because, you said it, "tax credits are not public money." And since we're dealing with a tax preference, the legislature can write any kind of restrictions into these programs and there is no constitutional barrier to prevent them from so doing — unlike vouchers.

The media and public opinion climate varies from one state to the next, but the pattern, overall, is that it has been easier to pass minimally regulated tax credit plans than to pass minimally regulated voucher plans. See my discussion at the bottom of page 47 continued at the top of page 48 (click here, scroll to 5th paragraph). Even if Florida’s program is heavily regulated, the overall pattern will remain.

As I argue above, the voucher legal shield you speak of does not exist. Religious schools are already having their non-religious content influenced by the state in Ohio, and soon their graduation requirements will also be set by the state. Religious voucher schools in Milwaukee already have their religious freedom impeded by being forbidden to make religion classes mandatory for all students.

Private Schools and Pierce v. Society of Sisters – G.C.

GC: You mention the 1925 case of Pierce v. Society of Sisters as providing protection against excessive homeschool regulation. If you read the rest of the case, you will see that the court said the government has the right to regulate private schools — and I would think that includes homeschools to some extent, since that's how some states treat them — as they see fit. Your comments about limiting the program seem to indicate you do expect an additional regulatory burden on private schools with tax credits.

Private schools are already regulated, to varying degrees, by most states. I’m arguing only that the momentum for expanded regulation of homeschooling would increase only modestly under non-refundable tax credits, and less than it would under vouchers.

Tax Credits and Regulation – G.C.

GC: You say, "No additional regulations should be applied to private schools serving scholarship students beyond those already applying to all private schools." Based on what's happening in Florida, this seems a pretty unrealistic prospect. School choice needs more protection than a mere statement can provide.

I argue elsewhere in the paper that tax credits attract less regulation than vouchers. Readers are encouraged to review the whole document and come to their own conclusions as to whether tax credits or vouchers provide a better chance of passing an optimal program into law and of protecting such a program from regulatory encroachment.

Tax Credits Are More Vulnerable – Look at Florida – G.C.

GC: First, since tax credits are easier to attack, discredit and regulate once they are in place (look at Florida), opponents may be holding back on attacking tax credits until school choice forces have committed to them, and THEN attacking when the program is out in the open.

This is tantamount to saying "Presidents get shot by actors, look at Lincoln." Lincoln was not our only President and his experience, fortunately, was not typical. Florida is not the only state with an education tax credit program, and its experience has not been representative of the other states with such programs. Furthermore, even if it is saddled with many of the regulations that critics are proposing, it may well only catch up to the expansive regulatory burden that is already born by Florida’s own voucher program. Education tax credit programs in Arizona, Pennsylvania, and Illinois have proven relatively resistant to regulatory encroachment thus far, though admittedly they are too young for this pattern to be conclusive.

As I have pointed out in the paper and above, existing tax credit programs are, as a whole, systematically freer of harmful entangling regulation than are existing voucher programs. While Milwaukee’s voucher program has added religious schools to its list of eligible participants, Vermont and Maine have eliminated them. In Vermont, rescinding the exclusion of religious schools would require a state constitutional amendment, whereas a UETC program would very likely pass state constitutional muster because it would not compel taxpayers to support religious schools.

What About McKay Vouchers? – G.C.

GC: The choice of a tax credit plan over a voucher plan based on likely restrictions on voucher programs ignores the McKay voucher program which provides substantial sums of money to parents, substantial discretion to change schools, and relatively few restrictions on participating schools. Why not use this program as a model for vouchers?

It is an excellent model in the sense you describe. In fact, it is more similar to the optimal voucher program I outline than is any other existing U.S. voucher program. But it does not prove that such a program could be passed for a general audience. The only reason McKay avoided extensive standards/testing/admissions regulations is that it only serves disabled students. I argue that it would never have passed as a general program, based on the restrictions that have been placed on most other voucher programs. I’m sure most observers of the school choice wars would concur.

Tax Credits Require More Intrusive Oversight – G.C.

GC: With vouchers, raising taxes for K-12 education is already part and parcel of federal, state, and local tax collection/audit operations and so no changes are necessary if vouchers are implemented. The child's eligibility to receive a voucher would already be established by enrolling for school. The only additional approval and audit required would be a process to approve participation and subsequently audit the books of voucher-receiving schools. Additional audits would likely be required for the voucher-distributing agency.

With tax credits, much more verification, auditing, and monitoring of schools, students, student families, and donor families/corporations would be required to ensure fraud is kept to a minimum. These are all added costs of schooling and, as indicated earlier, are intrusive.

That is certainly a clear statement of your beliefs, but it would be helpful to know something about the facts that have led you to hold them. I’m not aware of any compelling body of evidence that supports your stance. How much additional auditing of individual families and private schools is going on in Arizona, Pennsylvania, Illinois and Florida? To my knowledge, there has been no rampant proliferation of such audits. As for SGOs, they would have to make public their finances as 501c(3) organizations, and some tax credit laws may impose additional financial audits on them, but what does this have to do with the effective operation of the marketplace or the freedom of parents? At worst, they represent some additional financial overhead for SGOs.