The best way to expand parental choice is to eliminate the penalty for parents who must pay twice for alternative schools: once through tuition and then through taxes.
Parental choice in education—whereby parents have the freedom to choose the school
their children attend—is seeing explosive growth in popularity and implementation.
Instead of sending children to an assigned school based on residence, Michigan parents
have asked for and received the ability to send their children to public schools outside
their home district and to create new charter schools to meet special needs and interests.
This study from the Mackinac Center for Public Policy presents a path-breaking approach
to expanding parental choice in Michigan education. It embodies a proposal to amend the
Michigan Constitution and establish a Universal Tuition Tax Credit (UTTC). In addition to
improving public education, the UTTC will save the state $3.4 billion in education
expenses in the first ten years of implementation and over $500 million each year
thereafter. These savings could be used to support additional educational programs,
address other budget priorities, or reduce taxes on Michigan citizens or businesses.
Section I reviews why parental choice is the most important systemic education reform
and evaluates various ways to expand it. In spite of the fact that parents are entrusted
to make vital decisions in nearly every area of their children’s lives, most Michigan
parents are unable to make true choices about education, one of the most important aspects
of their children’s development. Most children are sent to a government-mandated,
Choice is the engine for a market economy in all goods and services. The foundation of
basic economic theory is the ability of individual consumers to choose one good over
another based on their own preferences. Parents prefer good schools over poor schools for
their children. Assigning children to schools, based on where students live, deprives
parents of the freedom to apply their own values and priorities to selecting a school, and
it deprives schools of valuable marketplace incentives that drive continuous quality
Today, 12 percent of Michigan children—over 220,000—attend alternative
schools which charge tuition. Alternative schools include both private schools and public
schools; the latter may charge tuition when parents choose a public school outside the
home district and the home district superintendent refuses to release funding. The best
way to expand parental choice is to eliminate the penalty for parents who must pay twice
for alternative schools: once through tuition and then through taxes.
Section II examines Michigan’s constitutional prohibition on including nonpublic
schools in an open system of parental choice.
Section III reviews several methods of expanding parental choice. The study concludes
that, although both tuition vouchers and traditional tuition tax credits could be used to
eliminate the problem of double payment, both have disadvantages. Vouchers, for example,
are subject to allegations that they drain funds from public schools, permit state funds
to be used to support religious schools, will spawn a new type of entitlement program, and
invite overregulation of private schools. Traditional tuition tax credits—whereby
only parents are allowed to receive a tax credit—address some of the problems
with vouchers, but fail to help low-income and many middle-income families who lack enough
tax liability to benefit.
Section III sets forth the details of the UTTC plan. Although both vouchers and
traditional tax credits would be an improvement over the current system, the UTTC is
designed to capitalize on the strengths and minimize the weaknesses of each. The UTTC has
the following features and benefits:
It gradually phases in a tax credit for tuition paid to any Michigan elementary
or secondary school—public or private. It is a direct dollar-for-dollar credit
against taxes owed, not simply a deduction.
The tax credit may be claimed by any taxpayer—individual or corporate. This
includes a student’s parents as well as relatives, friends, neighbors or businesses.
A large company, for example, could pay $2,000 tuition for each of 1,000 low-income
children and receive a $2,000,000 tax credit.
The tax credit applies to three major state taxes: the Individual Income tax, the Single
Business Tax, and the 6-mill state education property tax. These taxes represent state
revenue of approximately $7.5 billion.
It is a per-child tax credit, allowing the full credit to be applied to each child in a
The amount of the credit is limited to the lesser of
Fifty percent of the amount Michigan public schools receive to educate each child. This
percentage begins at 10 percent and increases to the 50 percent maximum over 9 years.
Eighty percent of the actual tuition paid. This produces incentives for schools to keep
tuition rates reasonable, since not all of the payment will offset tax liability. If the
student is from a family whose income is below the federal poverty level the credit is 100
percent of actual tuition paid. This makes it easier for low-income students to benefit.
The UTTC produces significant savings to the state. Since the UTTC will make
alternative schools more affordable, more parents will transfer their children from
traditional public schools to alternative schools. With the maximum credit limited to 50
percent of per-pupil public school revenues, every student who transfers to an alternative
school produces a net savings of at least half of per-pupil revenues. For example, in the
1996-97 school year, the average per-pupil public school revenue is approximately $5,600.
The maximum tax credit would therefore be $2,800. If a student transfers to an alternative
school, the state must no longer spend the $5,600 and at most loses $2,800 through the tax
credit, producing a minimum net savings of $2,800.
Since the average tuition at private schools—which constitute the vast majority of
alternative schools—is roughly half of public school per-pupil revenue, the amount of
the tax credit provides enough incentive for parents to consider the alternative school
Section IV and Appendix I present a comprehensive analysis of the impact of the UTTC on
student enrollment and state finances over a 10-year period.
The report includes detailed guidelines and analysis, including:
The complete text of a proposed UTTC constitutional amendment (Section III).
Key elements of the implementing legislation, including sample forms and procedures
Answers to commonly asked questions regarding the UTTC (Appendix II)