Are Tax Credits Really Not 'Public Money'?

Are Tax Credits Really Not 'Public Money'?
July 1, 2005

George A. Clowes

George Clowes is a Heartland senior fellow addressing education policy. He served as founding... (read full bio)

Some education policy analysts say tuition tax credit programs such as Arizona's, which a federal district court judge on March 24 upheld as constitutional, are preferable to vouchers because they do not involve "public money" and are therefore less likely to be subject to government regulation.

But recent objections to tax credit programs raised in Florida, Pennsylvania, and South Carolina suggest school choice opponents see little difference between the two policy options, even though they involve fundamentally different approaches toward the goal of advancing parental choice in education.

The voucher model enables parents to access the tax dollars already designated for their children's education and redirect them to the public, private, or religious school they choose for the children. The tax credit model enables parents to access new dollars for education, either through an individual-use tax credit taken against the cost of private education or through scholarships from an organization funded by donations that qualify their givers for tax credits.

"[The tax credit] approach is far more sustainable legislatively and judicially," said Trent Franks, originator of the scholarship tax credit, when the Arizona Supreme Court ruled such credits constitutional in Kotterman v. Killian in 1999. "It will make scholarships available to all families, and religious schools don't have to be afraid of strings attached to the money, since none of it comes from government coffers."



Opponents Disregard Court's Ruling

Plaintiffs in the Kotterman lawsuit had argued the credit was "public money" because, without it, an equivalent amount of tax revenue would flow into the public treasury. However, the court ruled that reducing an individual's tax liability is not the same as the government spending a certain amount of money: The tax credit cannot be considered "public money" because no money enters the state's control as a result of the tax credit.

Opponents of school choice ignored the ruling. In their criticism of scholarship programs funded by tax credits, they have consistently made no distinction between privately funded tax credits and publicly funded vouchers.

For example, critics of Florida's corporate tax credit scholarship program have consistently characterized it as a "corporate voucher" program to imply the scholarships are publicly funded by the state rather than privately funded through tax credits. Specific criticisms of the scholarship program also have been virtually identical to the attacks leveled at publicly funded voucher programs--they argue that private schools participating in tax credit programs should be accredited, private school teachers should be certified, private school students should have to take state tests just like those in public schools, and the program "drains" money from underfunded public schools.



Distinctions Ignored

Newspaper reports in Florida typically make no distinction between the different funding sources for the tax credit program and the state's two publicly funded voucher programs. For example, a May 3 Tampa Tribune story about voucher accountability described the Sunshine State's three school choice programs as "three voucher programs" and stated, "[a]ll are paid for with taxpayer dollars."

Critics of Pennsylvania's Educational Improvement Tax Credit Program have made similar calls for fiscal and academic accountability standards for schools chosen by parents using the state's tax credits. Last year, State Rep. Phyllis Mundy (D-Luzerne) proposed that private schools benefiting from tax credits--which she called "backdoor vouchers"--should be subject to the same state assessment tests as public schools.

Before South Carolina Gov. Mark Sanford's (R) tuition tax credit proposal was stymied by the legislature in May, the Charlotte Observer ran a February 14 article on the proposal under the headline, "Should public money be used for private schools?"

The article, while not addressing the question of whether tax credits were in fact public money, quoted critics of Sanford's proposal who raised the common objections to vouchers. They said the money was needed for underfunded public schools, the credits would go to families who already had children in private schools, and there weren't enough private schools to handle additional students.


George Clowes (clowesga@aol.com) is associate editor of School Reform News.

George A. Clowes

George Clowes is a Heartland senior fellow addressing education policy. He served as founding... (read full bio)