Tuition Tax Credits and Equity

Proposals to advance parental choice via tax credits surfaced in the United States at state and federal levels in the late 1960s. By the mid-1970s a total of 13 state legislatures enacted tax credits to aid families with children attending private schools or colleges. However, most of these plans were overturned as state courts ruled that they provided public aid directly to religious schools. At the federal level, at least seven tuition tax credit proposals had passed the U.S. Senate by the late 1970s, yet none of the bills ever became law. In the early 1980s, the Reagan administration proposed various K–12 tax credit plans, all of which were defeated by the Democratic Congress. Most recently, since the enactment of the No Child Left Behind Act of 2001, both Congress and the Bush administration proposed numerous proposals to create a federal-level tax credit program, all of which failed to pass. States' legislatures, however, have realized more success in passing tax credit legislation. At the state level, tax credit programs have been proposed in over 40 states and are now operating in 6 states (Arizona, Florida, Illinois, Iowa, Minnesota, and Pennsylvania). Most of the existing programs became operational in the late 1990s and have expanded significantly over the last 5 years.

The expansion of tax credit policies raises important questions linked to equity and access to the benefits that are promised by these reforms. Tax credits are being promoted as a viable legal, political, and policy alternative to vouchers at both the state and federal levels, yet research measuring the effects of tax credit programs has not kept pace [Page 2193]with their expansion. This entry examines two important questions: First, which families benefit from tax credits? Second, do credits advance parental choice?

In contrast to voucher programs that advance a similar mechanism of providing public subsidies for private school tuition, tax credit programs have been successfully enacted in several states that had previously failed to implement voucher reform, including Arizona, Pennsylvania, Florida, and Minnesota. These programs employ a variety of alternative mechanisms that may present feasible legal, political, and policy alternatives to the complicated issues that are associated with vouchers. From a legal perspective, tax credits may avoid the religious entanglement issues associated with some state-level Blaine Amendments that restrict the use of public funding for religious institutions. From a political perspective, complicated debates may be circumvented. School vouchers are generally seen as an education policy that provokes controversy. Tax credits might instead be interpreted simply as subsidies associated with tax policy and more palatable to voters. Voters may also see tax credits as more universal and as a direct return on their tax efforts, instead of a redistributive policy associated with means-tested or targeted voucher programs that limit eligibility based on income threshold. From a policy perspective, the school establishment may offer less opposition because funding for tax credits is drawn from general state revenues instead of education budgets, thus potentially resulting in a fiscally neutral policy in relation to effects on state education budgets. Tax credit programs also provide the most indirect path of public money to private schools. Thus, policy makers may feel less inclined to impose state regulations on private schools that enroll tax credit beneficiaries than voucher recipients.

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