The model includes a utilization ratio to adjust for consumer behavior in using the credit and for
the 80-percent-of-tuition limit on creditable tuition for most taxpayers. The ratio is the
share of the theoretical maximum amount of credits available that are actually claimed.
The utilization ratio starts off fairly high at 95 percent; this percentage is selected
because, with a maximum tuition tax credit of between $500 and $600, tuition almost
everywhere will exceed the maximum tax credit. Almost all those who apply will receive the
maximum tax credit. The difference between 0.95 and 1.0 is due to tuition payers who for
some reason do not apply for a tax credit.
Over time, the utilization ratio drops to 85 percent. The ratio declines largely
because the maximum tax credit grows to a level that will exceed 80 percent of the tuition
paid by some parents on behalf of their children. (The increase in the relative size of
the tax creditfrom 21 percent of average alternative school tuition in the first
year to 86 percent in the eighth yearis shown in Table 6 on page 64.)
The model then calculates a weighted average tax credit per student, which, when
multiplied by the number of alternative school students, produces a tax credit total.
Table 9 shows that this figure starts at about $140 million in 1999 and increases to
almost $2 billion over the ten-year period.