School Reform: Giving Parents “Credit”

Michigan state budget annual savings under the Universal Tuition Tax Credit plan from 1998 to 2008. Total savings under the UTTC plan for the same time period, $3.4 billion. The Universal Tuition Tax Credit: A Proposal to Advance Parental Choice in Education is available from the Mackinac Center for Public Policy for $10.00 postpaid. Call (989) 631-0900.

Privatization in its broadest sense is the transfer of assets or services from the tax-supported and politicized public sector to the entrepreneurial and competitive markets of the private sector. There are several forms of privatization, but the key to each is less government control—a decentralization of decision making from government to the market and private citizens.

Tax credits provide one opportunity for decentralizing the decision-making process. In education, they may allow parents to choose a nonpublic school and receive a partial credit to offset taxes for the expense of educating their children outside the government school domain.

Tax credits provide one opportunity for decentralizing the decision-making process.

Last April, Arizona enacted a law that permits tax credits of up to $500 for anyone contributing to charitable groups that provide scholarships for students to attend private schools. In June, by an overwhelming vote, Minnesota lawmakers expanded the state’s program of tax credits for educational expenses, including nonpublic school tuition. In Cleveland, Ohio a bold new reform is in place that allows poor children access to vouchers so that they may attend the school of their choice.

Ohio, Arizona, and Minnesota are leaders among a growing number of states that are speeding past Michigan in the race to improve education. Whether it be by vouchers or tuition tax credits, legislatures are moving to enact innovations that introduce competition and enhance parental choice. Meanwhile, Michigan children are blocked from enjoying similar reforms by a 1970 amendment to the state’s constitution—arguably the most repressive, anti-choice provision of any state constitution in America.

Article VIII, Section 2 of the Michigan Constitution outlaws any "payment, credit, tax benefit, exemption or deductions, tuition voucher, subsidy, grant or loan of public monies or property . . . to support the attendance of any student" at any nonpublic school. This airtight ban prevents the government from writing checks directly to private schools, which assures the separation of church and state and minimizes the danger of government intrusion into private education. But by forbidding even a small tax credit for parents of nonpublic school students, it unfairly forces those parents to pay for their children’s education twice and to subsidize a public system they have chosen to escape. Oddly enough, Michigan allows a modest tax credit for private or public college tuition, while forbidding anything similar for K-12 education!

Parents of nonpublic school students are not only doing what they regard as best for their children, they are also saving Michigan taxpayers almost $1.5 billion this year. That is how much the state would have to raise taxes if all those parents pulled their 240,000 children from private and home schools and enrolled them in the public system.

Moreover, Article VIII, Section 2 is unfair to every Michigan child because it stifles the healthy forces of competition that are transforming and improving virtually every other aspect of modern life. Impeding competition serves unions, bureaucracy, and those who enjoy the material benefits of monopoly, but it removes incentives for quality, efficiency, and accountability. If the purpose of education is to prepare children for the future, Michigan’s constitution must change.

The broad outlines of the most prudent form of this change are these:
The state’s prohibition against direct aid to private schools should remain. Parents who are already making education a priority by their personal, private choices should be encouraged, not penalized. Other citizens who want Michigan children to have the most options and the best opportunities must be stimulated to get directly involved. And barriers to better education for poor children should be removed.

Vouchers, though a likely improvement over the present system, are not the best way to accomplish these things because they invite greater government control over private education. They also would prompt many parents to raise this legitimate objection to their use by private school parents: "Some of my money is going to send your child to a religious school."

The best route to educational improvement in Michigan is to permit tuition tax credits—not just for parents who send their children to an alternative school, but for anyone (including friends, relatives, and businesses) who contributes toward the tuition of any child attending any school that charges tuition, public or nonpublic. A plan that would bring this about is now on the table for public debate and is known as the Mackinac Center for Public Policy’s Universal Tuition Tax Credit (UTTC).

The UTTC is "universal" because it would apply toward the tuition of any elementary or secondary student attending any public or nonpublic alternative school in Michigan. This includes any tuition-charging public school outside the student’s intermediate district. It would be applicable against the personal income tax, the Single Business Tax, or the 6-mill statewide property tax and could be used by any state taxpayer—individual or business—that pays tuition for a Michigan student to attend an alternative school. It is capped at 50% of the state’s per pupil expenditure (currently about $5,600).

Phased in over nine years, the UTTC would actually save the state hundreds of millions of dollars, which could boost school funding or else be returned to the taxpayers in tax cuts. If it were fully operational right now, for instance, every child who opted out of the more expensive traditional public system for a less expensive alternative school would save the state $5,600 in expenditures, while costing the state no more than 50% of that, for a net savings of $2,800 per student.

Under the current system, per pupil state expenditures grow from $10 billion to almost $14 billion between 1998 and 2008. Under the UTTC plan, state expenditures grow, but at a significantly slower rate. By the time the UTTC is fully implemented, the taxpayers would be spending about a half-billion dollars less each year. This would amount to a total savings of over $3.4 billion in the first ten years alone, and over $550 million each year thereafter (see graph, page 11).

Tax credits provide one opportunity for decentralizing the decision-making process.

The Michigan Education Association has taken a confused position on the UTTC, claiming it is a voucher. Vouchers are not tax credits, and here is why: Vouchers take taxpayers’ money and transfer it to people for some express purpose—sending children to nonpublic schools, for instance. Tax credits are reductions in tax liabilities that let taxpayers keep more of their own resources. The UTTC cannot be a voucher since the plan itself prohibits vouchers. However, vouchers and tui-
tion tax credits do have one effect in common: They both give parents more control over where their child attends school.

Innovative privatization concepts like the UTTC are cropping up in other states which don’t have draconian prohibitions against educational choice and competition. It is time to start asking why Michigan’s constitution should continue to thwart the kind of reform that can make a real difference in the lives of our children.

Editor’s Note: The entire text of the Mackinac Center study, The Universal Tuition Tax Credit: A Proposal to Advance Parental Choice in Education is available on the World Wide Web at