(The Wall Street Journal has called the Mackinac Center for Public Policy the nation’s "leading advocate for a universal education tax credit." Given the Mackinac Center’s pioneering work on this issue, we often monitor and comment on tax credit proposals in other states. The following piece is an analysis of two education tax credit bills that have been proposed in the New York State Legislature.)

Young New Yorkers, like their peers around the country, have begun a new school year. For the most part, they attend schools chosen not by their parents but by a government formula. They are taught a curriculum over which their parents have no direct say. Their parents (and other taxpayers) have to pay for these schools whether they are satisfied with them or not.

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Though most New Yorkers seem resigned to this arrangement, a few, including a bipartisan group of state legislators, seem to think there’s a better alternative. They feel the public would be better served if parents could easily choose from a wide range of public and private schools, all of which were competing for the opportunity to serve their children.

These champions of parental choice have proposed a pair of bills in the state legislature. The first, co-sponsored by Republican state Sen. Serphin Maltese and Democratic Assemblyman Dov Hikind, would provide tax credits for individual and corporate donations to both public schools and to scholarship organizations serving children in independent schools. In other words, New Yorkers would receive tax credits for donations they make to scholarship organizations, and those organizations would use the money to provide tuition assistance to families choosing independent schools. Home schoolers and public school teachers who pay for classroom supplies out of their own pockets would also be eligible for credits under this bill.

The second proposal, sponsored by Sen. Martin Golden, a Republican, and Assemblyman Vito Lopez, a Democrat, would allow families to take a credit against their own education costs and would also include a credit for public school teachers who pay for classroom supplies.

How effectively would these bills advance Americans’ ultimate educational goals of ensuring universal access to quality schools and fostering a stable, cohesive society? The answer to that question lies in the extent to which they would create the conditions for a vibrant, universally accessible education marketplace. The following are characteristics I have found to be associated with the most vigorous and harmonious education systems both historically and internationally:

  1. Unfettered choice for parents

  2. Some direct payment of tuition by parents (the more the better)

  3. Financial assistance only as needed to ensure universal access (see No. 2)

  4. Freedom for educators from conformity-inducing regulation

  5. Vigorous competition among schools (depending in part on the number and proximity of schools)

  6. The presence of entrepreneurial for-profit schools to drive innovation and expansion

  7. The avoidance of compulsion (e.g., pressuring families to choose certain schools or forcing taxpayers to fund schools that violate their convictions) to minimize social conflicts

The Maltese/Hikind bill, which would create tax credits for donations to private scholarship funds, would make a positive contribution to parental choice, financial assistance, educator freedom and competition, all while avoiding compulsion. The first four of these effects follow directly from the fact that, under Maltese/Hikind, more parents and educators would be able to associate with one another on a mutually voluntary and minimally regulated basis.

Two groups would benefit from this bill: parents and taxpayers. Parents would be under less financial pressure to send their children exclusively to a state school system that might run counter to their own values. Taxpayers would be able to choose the scholarship granting organization to which they made their donations. Both groups would suffer less compulsion and enjoy greater choice.

But there are devils in the details. The total amount of financial assistance that scholarship donation tax credits could provide under this bill is tightly constrained by a $500 cap on the credit size. This cap would limit access to, and hence demand for, independent schooling and thereby limit the number of new schools entering the education marketplace. That, in turn, would constrain competition, thereby impeding the market’s effectiveness. Further limiting the credit’s ability to raise a substantial amount of money for scholarships is the fact that it applies only to the state income tax, which represents only about a third of New York’s combined state/local tax base. Local property taxes account for a nearly equal share of the total tax base, and a credit that could be applied to property taxes as well as income taxes would thus have a much greater capacity to expand access to the education marketplace.

Maltese/Hikind also forbids for-profit schools from participating, a restriction that would kill the market’s single most powerful incentive for innovation and the expansion of successful schools. Such a ban is no wiser than a ban on for-profit grocery stores, for-profit booksellers or for-profit auto-makers. Non-profit schools—both public and private—have been perhaps the most stagnant sector of the entire economy since the turn of the 20th century. What other field has progressed so little in its quality and productivity over the past hundred years? Perpetuating this pattern of stagnation by discouraging the rise of entrepreneurial for-profit schools would deprive children of the best educational options.

The Golden/Lopez bill, which offers tax credits against parents’ own educational expenditures, would have a positive impact on parental choice, direct payment of tuition by parents, financial assistance, educator freedom, competition and would avoid compulsion. Again, however, there are caveats. While the previous bill offers credits only against actual taxes owed—this is called a "non-refundable" credit—Golden/Lopez can dole out money from state coffers to those whose tax liability is less than the value of the credit—this is called a "refundable" credit). In other words, if you had one child and owed $200 in state taxes, and you claimed the credit, you would not only see your $200 tax liability erased, you would receive a check from the state for up to $1,300.

Because it is refundable, Golden/Lopez risks running afoul of the state constitution’s Blaine Amendment (Art. XI, Sect. 3), which proscribes spending public money, directly or indirectly, on religious education. Proponents of the bill would argue that the money benefits the families involved rather than the schools. However, there is no way to know how favorably the state Supreme Court would view that argument. By contrast, under non-refundable tax credit programs such as Maltese/Hikind, no government money is spent and so Blaine Amendments do not apply.

Moreover, government funding and government regulation of education are inextricably linked, as considerable historical evidence demonstrates. Since refundable credits represent government funding, it is possible that the public pressure to impose regulations on the use of such credits would be greater than if they were non-refundable. It is arguably harder to demonstrate a public interest in telling parents how to spend their own money than in telling them how to spend public money. To date, non-refundable tax credit programs in other states have tended to be less heavily regulated than voucher programs that involve a clear outlay of government funds.

A final concern about refundable tax credits is that, because the credits would result in government education subsidies to parents, they would involve more compulsion for taxpayers than a donation tax credit such as the one in the Maltese/Hikind bill. Under Maltese/Hikind, taxpayers can decide for themselves which scholarship granting organizations they trust to be wise and efficient, and can redirect their donations if they become disappointed with any particular organization. Under Golden/Lopez, however, all taxpayers must fund the choices made by all citizens who claim a refund under the tax credit program, so taxpayers may end up being forced to fund categories of education that violate their convictions. This same taxpayer compulsion exists under traditional public schooling as well, because all taxpayers are forced to pay for public schools that some find objectionable on the grounds of their content and/or inefficiency. In other words, Golden/Lopez is no worse with respect to taxpayer compulsion than the traditional public school system, and it engenders considerably less compulsion of parents, so it is still a net gain over the status quo in this regard.

Like Maltese/Hikind, Golden/Lopez also applies only to the state income tax, so it can only offset a fraction of a parent’s combined state and local tax burden. This would limit the size of the credit substantially compared to a credit that would also be applicable to local property taxes. A credit applicable to both taxes would do a much better job of promoting direct financial responsibility for parents, because parents could keep more of the money that they themselves earned and would not require as much financial assistance from third parties.

Golden/Lopez also imposes a ban on participation by for-profit schools, a decision whose negative repercussions have already been discussed.

Finally, both bills admirably attempt to relieve public school teachers of the expense of paying for their own classroom supplies, but do so in an ill-conceived fashion – by increasing the already excessive level of public school spending rather than reallocating it more wisely. Public schools in New York state spend roughly $14,000 per pupil annually, or $420,000 for a classroom of 30 children. That should be enough money to buy chalk. If it isn’t, New Yorkers need to find a different brand of chalk, or a different kind of school system. It would be irresponsible and wasteful to channel more money into a system that so miserably mishandles its vast existing budget.

To sum up, perhaps the best approach to these bills, from the standpoint of fostering a universally accessible and vibrant education marketplace, would be to:

  1. Combine the two into a single bill

  2. Expand them to include local property taxes

  3. Allow the participation of for-profit schools

  4. Raise or eliminate the cap on donations under Maltese/Hikind

  5. Raise the cap on personal use credits under Golden/Lopez

  6. Remove the refundability of Golden/Lopez

  7. Replace the public school supplies credit with a mandate that districts cover teachers’ expenditures on necessary classroom supplies out of their existing budgets

Under such a dual tax credit program, many more families could afford to pay for their own children’s independent schooling and lower income families would be able to choose from a range of scholarship granting organizations when seeking tuition assistance. The entire system would be financed through voluntary private spending which would simultaneously maximize direct parental responsibility and avoid Blaine Amendment concerns. Compulsion would be reduced to a minimum because no one would be pressured or compelled to send their children to a particular kind of school or to pay for a kind of schooling they found objectionable.

Both Golden/Lopez and Maltese/Hikind have many desirable characteristics. By combining them and eliminating some of their less desirable traits, they would produce a parental choice bill of tremendous potential.


Andrew J. Coulson is the senior fellow in education policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.