Tax Credits Are Affected by Economic Climate – G.C.

GC: I am not in favor of promoting donation tax credits as a solution to the problems of K-12 education nor as a way of getting around the "problem" of low-income families not having a tax liability. That's because I do not consider it sound strategy to tie to education of poor families — who universal public education is primarily intended to benefit — to the health of the economy and the generosity of the public.

Education funding is always affected by the health of the economy. As income and/or wealth fall, tax revenues go down, even in the traditional public school system. When times are hard, voters reject local bond levies that they would endorse if times were good. School districts then have to cut their budgets and then try again for a smaller levy. State transfers to school districts can also suffer when state revenues fall. If you look at a chart of real per-pupil spending for the last 80 years, you’ll find that there are several periods, albeit brief ones, during which real spending fell from one year to the next.

Just as voters can elect to raise their property tax mill rates when property tax revenue falls, in order to maintain public school spending levels, so too could voters elect to raise the size of a tax credit to maintain total donation credits. I see little difference between the two scenarios.

Unless vouchers are explicitly indexed to inflation, their real value will fall over time. When the economy is healthy, support for increases in the voucher to keep up with inflation will be greater than when the economy is weak. Real education spending under vouchers will thus also fluctuate with the economic times.

The same applies to the generosity argument. Current tax levels are set by the voters, there is no guarantee that the voters will maintain public school spending or voucher spending at current levels, any more than there is a guarantee that scholarship donations would be maintained at some specific level. Unless you're suggesting we switch to an autocratic form of government, financial assistance for the poor will always depend on the generosity of wealthier citizens.

Tax Credit Programs Have Limits – G.C.

GC: Third, tax credit proposals are generally limited, access only a small amount of state funds, and generally avoid being credited against property taxes, where they would face the same vigorous opposition as vouchers.

Though existing tax credit programs are limited, and are fewer in number than voucher programs, they are nevertheless already serving more families than voucher programs. This reality does not seem to me particularly favorable to vouchers.

Your other point, however, is well taken. Resistance may be more aggressive to programs that include property taxes, but support will arguably be greater as well since the usefulness of such credits is greater. As the Mackinac Center’s Vice President, Joe Lehman, has pointed out: "The property tax is the most hated tax, and more people pay it than the other taxes likely to be creditable. A property tax credit theoretically expands the base of political support."[1] And while resistance may intensify, there’s no reason to think it would expand to a larger constituency.

At any rate, experience seems to show that self-interested players such as the NEA and AFT oppose any and all voucher and tax credit programs with equal fervor. I don’t know of any evidence showing that they are less aggressive in opposing smaller programs, or ones that don’t include property taxes. And ease-of-passage is not the only, much less the most important, reason to prefer tax credits over vouchers.

Tax Credits not Financially Viable as a Universal Program – G.C.

GC: I don't think a Universal Education Tax Credit will fulfill the goals of "an education market driven by the unfettered choices of parents, in which both for-profit and non-profit schools compete freely and vigorously to attract and retain students." Neither personal tax credits nor donor tax credits can produce either a) the consistency of revenue stream or b) the magnitude of tuition dollars or c) the size of market necessary to attract for-profit operators into the market. To deliver tax credits of sufficient magnitude to create a viable education market supported by tax credits would require high taxes. That is not a very defendable position to establish.

The revenue stream might be somewhat more consistent under vouchers, but I don’t agree that there would be a dramatic difference, and you have presented no evidence that there would be.

Regarding b) and c), I can’t imagine how you could make your case except in states overwhelmingly funded through sales taxes (which are hard to credit). Any tax that can be credited could be used by a UETC program, and that is the overwhelming majority of taxes in most states. Since education spending is only a fraction of total tax spending at present (usually about half), there is no reason why taxes would have to be raised. On the contrary, as a properly designed UETC program grew, it would diminish state spending on education and diminish total taxes collected. Vouchers would likely do the opposite, maintaining the existing pattern of ever-higher taxes to pay for an ever more expensive state-funded education system.

[1] Personal communication, August 26, 2005.