The following article is the unabridged version of an essay for the July 2001 issue of Imprimis, a publication of Hillsdale College in Hillsdale, Mich.
Few issues are more important to the future of this country than the education of our children, and few proposed reforms would do more to improve education than those that would create a truly vibrant, competitive, accountable and hence, choice-driven educational marketplace. More than ever, Americans support the concept of school choice, but exactly what is the best way to achieve it is coming under the microscope. Make no mistake about it—the national school choice movement is at a crossroads, but I will make a case here that a new and exciting direction offers great potential for success.
No great cause worth fighting for is accomplished quickly and easily. It may be tempting at times to become discouraged and pessimistic because of a bad turn of events—a negative outcome at the polls in a given election, or a defection from the ranks, for example. To really appreciate larger and longer-term trends, it's important not to let the moment tell the tale. We must mentally turn the clock back not hours, days, or months, but years and even decades sometimes. When we think that way about school choice, it's apparent that we've traveled a great distance.
When Nobel Laureate Milton Friedman first advanced the concept of educational vouchers nearly half a century ago, he was a voice in the wilderness. Few people heard his call and fewer still took him seriously. The overwhelming majority of Americans had become accustomed to government assigning their children to government schools by virtue of their residence, and even when they were unhappy with the results they rarely thought of "choice" as a solution. As the political power of teacher unions grew in the 1960s, it may have seemed then to those in the nascent school choice movement that the odds against them were getting longer, not shorter.
But ideas, as Richard Weaver put it, have consequences. Ideas, as Victor Hugo said 100 years earlier, are more powerful than all the armies of the world. They spur revolutions in the political, social, and economic landscape. They change the course of history. They bring down Berlin Walls and whole empires. They take the unmovable and they move it.
A presidential commission awakened the nation in 1983 with this alarming declaration: "If an unfriendly power had attempted to impose on America the mediocre educational performance that exists today, we might well have viewed it as an act of war." A few years later, two scholars—John Chubb and Terry Moe—published a book that put school choice on the frontlines, "Politics, Markets and America's Schools." The choice movement took off, as think tanks, parent groups, and activist organizations devoted to it proliferated.
It is no exaggeration to now say that almost 50 years after Milton Friedman planted the seed, the philosophic and intellectual battle for school choice has been largely won. The ideas of one-size-fits-all or government-knows-best or monopoly-gets-better-results-than-competition are bankrupt. The deplorable outcome of those empty notions is defended by the vested interests whose pockets are lined by the status quo. Parents, taxpayers, and others who are serious about educational quality know better. What is now up for grabs is the practical implementation side of the choice issue. Before exploring that, and offering a promising option, let me summarize the very case for choice itself.
Why Choice Works
The empowerment and transformation of parents into active agents is the foundation of educational choice theory. It's a fact of life that as human beings, we take a greater interest in those things over which we have some power of discretion than in those things we feel relatively helpless to affect. That's why many people spend more time shopping for the car they want—visiting dealership showrooms and comparing prices and features—than they spend in picking the right schools for their children. For a hundred years or more, governments have assigned our children to local public schools based where our homes are; and we pay for those schools whether or not we're able to choose an alternative. That's a strong financial incentive to stay put. The very nature of public, monopolistic bureaucracies is such that raising objections to what the government offers is frustrating, time-consuming and often futile. But when parents are able to say "no, thanks" with speed and ease, they can and will step up to the plate and behave like real consumers of education who are empowered to start shopping around.
Actually, some parents shop around now. The very wealthy have always had school choice. For them, the price of admission to a good public school may be merely the cost of a moving van and a nice, big house. Or because they can afford to, they will simply pay twice—once in private school tuition and then in taxes for the public system they can reject. A surprising number of poor, inner city families opt for nonpublic alternatives too, but only at enormous sacrifice. Sadly for millions of low-income Americans, education for their children means being stuck with failing and dangerous public schools that spend too much to achieve too little.
A strong correlation has long been noted between parental involvement and the success of children in school. The concept of choice takes full advantage of parents' valuable knowledge about their children and their respective talents, abilities, and learning styles. This information equips parents to make optimal choices about where their children should attend school and what kind of school might best suit their children's needs and temperaments.
Some people say that in an educational system that allows for parental choice, the more thoughtful and involved parents may opt out of a particular school, leaving behind to languish in despair the children of less caring parents. But this ignores the synergy that happens when choice and competition are at work. I like to put it this way: It takes only a few patrons to leave the restaurant for the chef to get the message to improve the menu. In other words, choice benefits everybody including those who choose not to fully employ it themselves. That's the magic that has made American free markets the envy of the world.
Why is it that we trust parents in so many areas except education? In our relatively free society, parents decide what foods their children will eat and what foods they will avoid. They decide with whom their children will play, how much television they will watch, and how much homework they will do. The same parents decide which physicians will treat their children's injuries, which dentists will check their teeth, and which babysitters will care for them in their absence. As their children grow, these parents will help them decide which clubs, churches, and organizations to join and which courses of study to pursue. These parents exercise choice when it comes to preschool and higher education, and no one argues that using a government assignment system would make our preschools or colleges better. And yet, many employed by the government school establishment tell us that these very same parents cannot be trusted with choice for grades 1 through 12. That's nothing more than self-serving nonsense.
If Americans had done to the provision of food what they've allowed to happen with their schools, we'd have government farms producing food for sale in government grocery stores. You'd be assigned to one and that's where you would have to buy your groceries. You could patronize a different store, but for the crime of wanting something better for your family, you'd have to submit to the penalty of paying twice. Your assigned government store would get your money whether you shopped there or not. If you wanted to raise objections to what was offered on the shelves, you'd have to wait until the next election, mount an expensive campaign, and cross your fingers. Or, you could line up at boring public meetings and have condescending government officials make you feel anti-social just for showing up. If that had been the way we organized our provision of food a hundred years ago, a presidential commission would have since declared the results akin to an act of war by a hostile foreign power. An ever-expensive, seemingly intractable, national food crisis would fester. And Cambodia would be sending us "Care" packages.
But Americans understood the potent power of choice and competition, left food to the marketplace, and became the best-fed people on the planet. They are now coming to understand, thankfully, that the same principles can apply once again to education.
Three Kinds of Education Reform
Everybody these days is a public school "reformer" because everybody knows that public education needs a fixing at the very least. But not all education reforms are created equal. Indeed, at the Mackinac Center for Public Policy, we believe that all reforms intended to improve the quality of public education fall into just three categories: those dealing with rules, those involving resources, and those concerned with incentives. A comprehensive primer on school choice authored by our director of education policy, Matthew Brouillette, evaluates each approach and also provides point-by-point rebuttals to all the major myths and misconceptions raised by choice opponents.
Rules-based reforms include such things as extending school days and the school year, changing teacher certification and school accreditation requirements, imposing national and state testing, enacting stricter dress codes, and the like. Research has shown that these reforms, while causing marginal improvements, have failed to turn around a large-scale decline in education. More drastic city or state "takeovers" of failing schools and districts and legislative proposals such as "Outcome-Based Education," "Goals 2000," and other regulatory regimes have been and still are being tried, with the same disappointing results.
Another attempted strategy to improve public education is through resource-based reforms. They include such measures as increased funding, new textbooks, wiring schools for Internet access, renovating or updating school facilities, reducing class sizes (fewer pupils per teacher), and other measures that require greater financial expenditures.
Scholars have studied the relationship between per-student spending and achievement test scores since the publication of "Equality of Educational Opportunity" (better known as "The Coleman Report") in 1966. Author James Coleman, a leading sociologist, concluded that factors such as per-pupil spending and class size do not have a significant impact on student achievement scores.
Economist Erik Hanushek and others have replicated Coleman's study and even extended it to international studies of student achievement. The finding of over 30 years of their research is clear: More money does not equal better education. There are schools, states, and countries that spend a great deal of money per pupil with poor results, while others spend much less and get much better results.
Yet, despite this and subsequent findings, many lawmakers and educators continue to believe that additional resources and funding will somehow solve the problems within the government education system.
The Kansas City (Missouri) School District provides the perfect illustration of the inefficacy of increasing resources to improve academic and social outcomes. In 1985, a federal judge directed the district to devise a "money-is-no-object" educational plan to improve the education of black students and encourage desegregation. Local and state taxpayers were ordered to fund this experiment.
The result: Kansas City ended up spending annually more money per pupil, on a cost-of-living adjusted basis, than any of the 280 largest school districts in the United States. The money bought 15 new schools, an Olympic-sized swimming pool with an underwater viewing room, television and animation studios, a 25-acre wildlife sanctuary, a zoo, a robotics lab, field trips to Mexico and Senegal, and higher teacher salaries. The student-to-teacher ratio was the lowest of any major school district in the nation at 13-to-1. By the time the experiment ended in 1997, costs had mounted to nearly $2 billion.
Yet, test scores did not rise. And there was even less student integration than before the spending spree, not more. In May 2000, the Missouri Board of Education officially removed accreditation status from the district for failing to meet any of 11 performance standards. The loss of accreditation means the district has two years to raise test scores, improve graduation rates, and make progress in other areas or face the prospect of a takeover by the state.
We have all but exhausted the "rules" and "resources" approaches to education reform, with little to show for our time and money. The one promising category left is "incentives." Merit pay for teachers is one incentive-style reform. But for reasons I've already pointed out here as well as many more, parental choice is the centerpiece of this strategy. The dramatic growth of charter schools and both intra-district and cross-district public schools-of-choice programs all represent recent introductions of incentive-based reforms. These measures are beginning to replace the rigid assignment system with some important but rather limited choice opportunities.
Giving consumers the opportunity to buy their groceries from the government grocery store of their choice without penalty is certainly better than assigning them to a single public store. But full-blown grocery choice that harnesses the power of a competitive marketplace to maximum advantage is one that removes all political barriers to choice among all options, private grocery stores included. Likewise, full educational choice implies the freedom of parents to pick the best and safest schools—public or private. Parents who place a high priority on education for their children would be empowered or incentivized, not penalized.
Milton Friedman was the first major American figure to sketch a vision of full educational choice, and the vehicle he proposed for achieving that vision more than 40 years ago (and one he still champions to this day) is the voucher. Public, tax-funded vouchers are simply direct payments from the government to individuals to enable them to purchase a particular good or service—in this case, education—in the open market. Those payments can be in the form of a check that the beneficiary deposits in his bank account and draws upon to pay for the vouchered item. Or, they can be a coupon that the beneficiary gives to the private provider of the vouchered item, who then redeems it for cash from the government.
Food stamps are a well-known example of vouchers. When Congress started the program in the 1960s, it could have gone in another direction. To help low-income people get food, it could have set up those government grocery stores I've already mentioned, and then required the poor to get their food there. But in the interests of keeping costs down, keeping quality high, and allowing recipients the benefit of choice, the Congress created food stamps instead. I'm very well aware of all the valid moral and economic arguments against food stamps and the subsidy they represent, but let's face it: they beat Soviet supermarkets hands down.
We should note that vouchers aren't always creatures of government. Pioneered by such philanthropists as Peter Flanigan and J. Patrick Rooney, privately funded vouchers (sometimes called scholarship programs) are now making it possible for tens of thousands of children to opt out of bad public schools and into good private ones. Such programs have the inherent virtue of being entirely voluntary every step of the way. Bureaucracy for its own sake doesn't exist within such programs. And because no tax money enters the picture, there are no politicians piling on the paperwork, meddling with the schools, or otherwise using the education of the children involved as a political football. But the real debate over vouchers for school choice centers on publicly funded ones.
Public voucher programs are in place in Milwaukee, Cleveland, certain rural communities within the state of Vermont, and in a very limited way in Florida. Parental satisfaction is high and studies are beginning to show that the programs are yielding improvements in student performance. But at the same time, the future of the voucher option is cloudy and uncertain. Legal and constitutional challenges are numerous. The opposition has succeeded in stigmatizing vouchers to the point where "the V-word" is shunned even by proponents. President Bush could not get the Congress to fund even a tiny voucher program. A significant number of private schools that would be eligible for vouchers don't want to touch them with the proverbial 10-foot pole, in fear of the attached strings.
And it's becoming abundantly evident that while vouchers may be politically feasible in a few legislatures, they are dead-on-arrival when attempted at the ballot box. No voucher initiative—and there have been many of them—has ever secured much more than 30 percent of any popular vote, even as polls show strong majority support for the general concept of choice at the same time.
Increasingly within the school reform movement, vouchers are no longer seen as the one and only way, or even the best way, to realize full educational choice. There is, in my view, a superior option that is not only better policy but is more politically viable as well. That option is tax credits.
Tax credits are designed to provide parents with tax relief linked to expenses incurred when they select a school other than the government-assigned one for their children. That typically means a private school, but tax credits can also apply to tuition charged by a public school that accepts a student from outside its regular jurisdiction. The credit is usually a dollar-for-dollar reduction in taxes owed (whereas a tax deduction is merely a reduction in taxable income). For example, if a taxpayer has a pre-credit tax liability of $2,000 and a tuition tax credit of $1,500, the taxpayer would pay a tax of only $500.
Tax credits are typically applied against only state and/or federal income taxes, but property tax credits have been proposed as well. For the purposes of school choice, tax credits might be allowed for any or all out-of-pocket educational expenses incurred by an individual, from tuition to textbooks to transportation to extracurricular fees—though tuition is the most common expense allowed in practice. Private schools usually charge tuition and/or fees, and government schools often charge tuition to nonresident students and fees for extracurricular activities. These expenditures are also creditable items under many tax credit proposals.
Many proponents of educational tax credits prefer them to vouchers on the grounds that they entail less government regulation of private schools and less risk of entanglement between church and state because of their indirect nature. Credits, unlike vouchers, do not transfer any money from the state to schools or taxpayers. There's no need to launder anybody's money through a public bureaucracy first before it pays for a child's schooling.
Indeed, because vouchers are funded out of the pool of taxpayer funds, some citizens will always argue that "Some of my money will be going to send your child to a school I don't like." Those citizens will want government to regulate how, when, and where their tax money can be used by other people. The legislators who appropriate it and the bureaucracy that dispenses it will be more than happy to oblige.
Because of the prospect of regulation, some private schools will surely not accept vouchers—at first. But over time, it will become very difficult for them to pass up the allure of "free" money and the opportunity to make schooling less expensive for their families. Government shackles will follow government shekels, as they always do sooner or later. With private schools increasingly dependent on voucher revenue, few will be able to wean themselves away when regulation becomes invasive. The initial benefit of competition between schools due to vouchers will diminish as regulation homogenizes all schools into an amorphous blob feeding at the public trough.
Tax credits, on the other hand, don't represent a claim by anyone on someone else's wallet. You don't get the credit if you don't pay tuition or if you don't pay taxes. A credit on your taxes represents your own money, period.
Education researcher and author Andrew Coulson notes that a significant advantage tax credits have over vouchers is that they restore to the family the direct financial responsibility for educating their children. He writes, "Since all the money involved in these [tax credit] programs is privately and voluntarily spent, issues of church-state entanglement and necessary public oversight of public spending are rendered moot. Because of the greater resistance to regulation that follows from the absence of state funding under tax-credit programs, those programs do a better job . . . ." Coulson argues that tax credits are superior to vouchers because they more effectively promote and protect the conditions that have historically produced educational excellence: parental choice, direct parental financial responsibility, freedom for educators, competition among schools, financial incentive for educators, and universal access to the education marketplace.
Here's another way to see this crucial difference: Vouchers are food stamps for education, a mechanism for the forcible redistribution of wealth from all citizens to some citizens. Tax credits are mechanisms for fairness, an accounting device that permits people to keep at least some of their own money that they would otherwise pay for the government-assigned school they are not using. Moreover, if the credit allowed is a modest one—half, for example, of what the government spends per pupil in the public system—then an actual savings for the public system and for all taxpayers is generated every time a child migrates from a public school to a private one. All of that makes it impossible for opponents to argue honestly that the tax credit is "draining" funds from the public system, though the more dishonest among them will say that anyway.
In the long run, vouchers may not diminish the role of government and politics in education. Tax credits are much more likely to reduce that role and to put private institutions and private individuals—parents in particular—in charge once again. But while both mechanisms are worth the risk to escape the intolerable status quo, both still require vigilance to keep the government at bay.
Friedman has said he prefers vouchers over tax credits because we should not use the tax system as a social engineering tool. But a tax credit for education is fundamentally different from a tax credit for solar panels or electric cars or any other politically correct gimmick du jour. That's because not only is education itself mandatory, but taxes to pay for it are as well, and that's not likely to change any time soon. A tax credit designed to get you to change your behavior (to buy a solar panel, for instance) is just not the same as a tax credit that refunds some of what government charged you for something you don't want to buy.
Instinctively, most people seem to understand this distinction. They are naturally more sympathetic to the fairness of a tax credit than the redistribution of a voucher. They are much more familiar with tax credits and their kissing cousin—tax deductions—because they've used them again and again year after year. When a survey of congressional and state legislative candidates was done in my state in 1998, we found many incumbents and challengers who favored tax credits for education but not vouchers, and none who favored vouchers but not tax credits.
When a voucher plan was on the ballot in Michigan in November 2000, yard signs popped up all over the state declaring "No Vouchers!" It's hard to imagine a similar proliferation of "No Tax Credits!" signs, had that been the choice before voters. Even liberal Democrats like Bill Clinton, Al Gore, and our new U.S. Sen. Debbie Stabenow support tax credits for preschool and post-grade 12 education.
Not surprisingly, of all the many statewide ballot initiatives for educational choice across the nation in the past 30 years, the one that holds the record for securing the greatest percentage of the popular vote is the 1998 Colorado tax credit initiative (about 41 percent). It was poorly crafted, vastly underfunded, and it came out way too late for its proponents to have enough time to inform the public. But it still beat by a good margin the highest vote percentage any voucher plan has ever won.
Yes, any tax credit adds a complication (a line or two) to our tax forms, and thereby takes us a step away from a less complicated flat tax. As a staunch advocate of limited government, free markets, and a flatter income tax if we're going to have one at all, I confess to a small strategic compromise there. But our voucher friends need to acknowledge that vouchers are a whale of a bigger fudge than any tax credit. Most voucher proponents don't advocate food stamps, redistribution, or government subsidies for any other business or enterprise. A tax credit for education is not so much a compromise as it is simply the best mechanism we're likely to get for letting people keep what's theirs when they are paying taxes for education but don't want to buy it from the government.
Tax credits for education can assume different shapes. Under a traditional credit plan, only a parent who pays private educational expenses (like tuition) for his child and who has a tax liability greater than the amount of the allowable credit will qualify. The problem with a traditional tax credit is that low-income parents who don't have the money to pay for a private school or have little or no tax liability will be left out in the cold. That deficiency could be remedied partially by making the credit "refundable," meaning the credit could result in a refund check from the government if your tax liability is low. But that would effectively voucherize the tax credit insofar as low-income parents are concerned, which would introduce some of the political and economic baggage of vouchers that I've already mentioned.
The form of tax credit that solves these problems is one for which my organization, the Mackinac Center for Public Policy, is nationally known for pioneering as early as 1996. We were the first to give it the name, "Universal Tuition Tax Credit," and the first to design such a plan for an entire state—Michigan. It will require an amendment to our state constitution, which I forecast will happen in the future, but until that day comes I'm happy to report that the concept is catching on elsewhere.
In states like Virginia, Utah, and Idaho, groups have copied or adapted the Mackinac plan to their particular state's tax and education funding infrastructures, and are gaining public and legislative attention for these adaptations. Our senior vice president and chief architect of the plan, Joseph Overton, predicts this approach will eventually eclipse all others as the preferred vehicle for achieving full educational choice. The Cato Institute in Washington has endorsed the basic framework of the Mackinac plan and is working with us to get it a wider hearing nationally.
Key to our "universal" tax credit concept is that it allows any taxpayer—individual or corporate, parent or grandparent, neighbor or friend—to contribute to the education of any elementary or secondary child and then qualify for a dollar-for-dollar credit against certain taxes owed. The maximum credit is equal to half what the government spends per pupil in the public schools, which is more than enough to cover educational expenses at 90 percent or more of private schools. It envisions scholarship funds supplied with private tax credit monies. These scholarship funds would be established by schools, companies, churches, and myriad private groups—spurred on by individuals and companies who want to help children get their schooling in the best and safest schools of their choice.
Would tax credits be sufficient to encourage businesses to contribute to education scholarship funds? Absolutely. After explaining the concept, I've asked CEOs all over our state this question: "Suppose you had a choice. You could send a million dollars in taxes to Lansing for the politicians to spend. Or, you could send that million to one or more scholarship funds to help children who might be your future employees get a good education. Which would you do?" I've never met one who preferred option #1.
The popularity of tax credits among parents has exploded throughout the country in recent years. K-12 tax credits have passed state legislatures in Arizona, Minnesota, Iowa, and Illinois. Arizona expanded parental school choice in 1998 to include tax credits for donations to both private scholarship programs and government schools. Former Gov. Fife Symington signed into law a bill in April 1997 granting an income tax credit of up to $500 for people who donate to nonprofit groups that distribute private scholarships to students. The law also offers taxpayers a credit of up to $200 for money given to government schools to support extracurricular activities.
Michigan Congressman Peter Hoekstra is proposing federal legislation that would permit a universal education tax credit of up to $500 against federal income taxes owed. That would keep billions of dollars from ever going to Washington in the first place, which is a virtue in itself. But education is still overwhelmingly a state and local matter, and that's where groups must work to craft a universal tax credit plan onto their existing tax and education infrastructure. That is now starting to happen, and in the wake of the crushing defeat last year of two well-funded, big-state voucher referenda (California and Michigan), I predict it will soon snowball.
One final thought: Any school choice plan should start with the recognition that private schools are not the problem we face today. They are an important part of the solution. We must not bargain away their independence to get choice even if it's in the form of a universal tax credit. We must not burden them with new government mandates cloaked in the guise of "accountability." Private schools are already accountable—they have customers who can take a walk, not captives who have no real options.
Educational choice is an idea whose time has come, and the universal education tax credit is an idea whose time is about to arrive. It can get the job done and avoid many of the problems inherent in the voucher approach. It will minimize the danger of intrusive government, though private schools will always have to be vigilant under any system. It will galvanize and strengthen civil society by giving individuals and companies new incentive to assist the educational dreams of their fellow citizens. It will bolster the incentives of existing public schools to improve. And perhaps most importantly, it will put choice and responsibility back in the laps of parents from whom such things should never have been taken in the first place.
Get involved. Make the case. Talk to your friends, your neighbors, and your legislators. Join the growing army of concerned parents who want real educational choice. If we win this, we'll no longer have an education system that looks like a hostile foreign power imposed it on us. We'll have a world-class system that leaves no child behind.