Good Credit: A Step Toward Education Freedom

Serious school reform is no longer a train that can be stopped. The groundswell of public opinion is on the side of reformers. Certainly, there are bureaucratic and special-interest obstacles to be cleared. But the people have spoken. They want more say over the education of their youngsters. A bill currently before the Maryland General Assembly, H.B. 1075, would go a little way toward providing that sort of parental involvement.

Introduced by Delegate James F. Ports, Jr. (R-Baltimore County/City), this bill would allow individuals to take a $50 state tax credit for donations made to organizations that provide scholarships for poor children to attend non-government schools. (To clarify, a tax credit is subtracted from the amount of tax owed by an individual; a tax deduction is subtracted from his taxable income.) In effect, donors to scholarship organizations could thus make $50 contributions to a child’s future at no cost to themselves. Though the bill is silent on the issue, presumably donations in excess of $50 might still be deducted from income, as now.

Though watered down over the first few weeks of this legislative session (the credit originally $500), the tax-credit concept still makes for sound law. Moral law. I recently had the good fortune to be able to speak about tax-credit policy before the House of Delegates’ Ways and Means Committee.1 This article is in part based upon that testimony.

The Problem
Almost a quarter of all the K-12 schools in this country are private schools, 23.6 percent, to be exact.2 Yet, nationally, 92 percent of all elementary and secondary education dollars (government and non-government sources) are spent on America’s public schools, with only eight percent being spent in private-school or home-school settings.3 So it is hardly as though the public schools are getting short-changed. Despite this, the dismal statistics continue: high dropout rates, dubious SAT scores, bloated central administrations.

Public Opinion
Regular, working Americans are aware of this sad litany. A 1995 survey revealed that six of every ten parents with children in the public schools said they would send their children to private schools if they could afford it.4 A 1997 NBC News/Wall Street Journal poll found that no fewer than 94 percent of those surveyed favored education reform of one sort or another.5

Maryland is no different. As regular readers of this journal are aware, last summer, the Calvert Institute released an opinion survey of 309 families that had in 1996 left Baltimore City for the counties. Only 11.7 percent said they had been satisfied with the Baltimore public schools.6

That is why it is so important for Maryland to take the bull by the horns and embrace tax-credit legislation in some format. It will allow people of modest means to spend their tax dollars directly on the worthy cause of decent education for youngsters currently trapped in failing schools. Instead of having bureaucrats decide how best to spend the funds, donors may now decide for themselves. It is their money, after all. If Marylanders are enabled to fund tuition organizations up to $50 at little or no cost to themselves, then there is every reason to suppose that fund raising for scholarship programs will increase – and with it the number of low-income children at last able to get a decent education.

Maryland’s H.B. 1075 is based on similar Arizona legislation that was passed a year ago. That legislation was described at the time in the Calvert News.7 If that state’s experience is anything to go by, H.B. 1075 is likely to be very popular.

Recently, the Calvert Institute received some advance polling data from Arizona. This information has not been published yet, but readers may be interested to learn that no fewer than 70 percent of the 1,000 or so people polled support the Arizona tax-credit program.8 This is despite the fact that the law has been tied up in litigation for nearly a year, as the result of a well publicized lawsuit instigated by the Arizona teachers’ unions.

The Law
Supporters of the Maryland tax-credit bill should bear in mind that legal action may be taken against the legislation. However, there is every reason to suppose that a tax-credit plan, properly devised, would pass constitutional muster. In a 1983 case, Mueller v. Allen (463 U.S. 388), the U.S. Supreme Court upheld a Minnesota tax-deduction plan for private education. The plan was expanded last year to include tax credits for non-tuition private-school expenses.9

The Arizona tax-credit plan is currently before that state’s supreme court (case no. CV 97-0412-SA). Many observers anticipate that the court will find no meaningful distinction between tax credits and tax deductions, the latter of which are perfectly permissible.

The case made by opponents of tuition tax-credit plans is that such legislation amounts to spending public funds to assist private – and possibly sectarian – schools. This is a very difficult claim to substantiate. If the money goes straight from the donor to a non-profit organization that administers a scholarship program, then the money is never “public” money because the government middle man has been eliminated from the equation.

In Arizona, tax-credit opponents have fallen back to making the odd case that the Arizona law is unconstitutional because it uses funds that constitute a grant of public money because,10 essentially, the funds would have been public money, had not the donors donated to the tuition organizations. This suggests that all money belongs to the government by rights and that taxpayers should be thankful for what little they are permitted to keep.

Rational Marylanders should be able to see this claim for what it is – nonsense. Interestingly, at the March 12 Ways and Means hearing on H.B. 1075, Suzanne Smith of the American Civil Liberties Union actually raised this faded flag.11 If one buys into this argument, then the same can be said of tax deductions. A tax deduction results in a donor’s paying less in taxes at the end of the year. Is that reduced tax liability money that “would have been public money” had the donation not been made? No, we do not consider it such, as upheld in Mueller.

Other Objections
Another principal objection raised in Arizona is that the credit program would rob the public schools of money. In Arizona, the tax-credit limit is set at $500. For every credit taken by an Arizona resident, the state’s local aid to school districts is reduced by $500. There appears to be no similar provision in H.B. 1075, which is a pity. Such a clause would (a) ensure budget neutrality, thus enabling the credit limit to be raised and (b) give the public schools at least a small incentive to compete to retain students.

But even if such a provision were added, there would still be no ground for public-school complaint. Average expenditure per student in this state was $6,446 in school year 1996-97.12 Of this, on average, 40.3 percent was made up of state funds13 – that is, $2,598. If a student opted for tax-credit-funded private school, the local-aid component could be reduced by $50 – i.e., to $2,548 – then passed through to the local school district. This would result in a per-pupil set aside of $6,396. Only in this case, there would be no pupil to spend it on. It would be extra money for the district to spend as it pleased. In short, the district would lose one whole student but only lose one small part of funding. That should not be rocket science.

One expert on tuition tax credits even goes so far as to refer to this type of legislation as a “public school preservation plan.”14 The same author calculates that a $1,000 tax credit in Philadelphia would result in a per-pupil increase in public-school expenditure of 3.4 percent if 10 percent of students opted for private schooling.15 She likewise calculates that a 10 percent transfer resulting from a $1,000 credit in New York would lead to a 5.5 percent increase in per capita funding in the public schools.16

Far from fighting to lower the limit of the tax credit, supporters of public schools should be looking for an increase: the higher that tax credit, the more scholarships will be created; the more scholarships created, the more children will move to private school; and the more children move to private school, the more funds will be freed up for the public schools. That should be something even union bosses can understand.

Dr. Munro is the president of the Calvert Institute. He is a former education researcher for the Heritage Foundation.

End Notes
[Back] 1. Hearing before State of Maryland, General Assembly, Committee on Ways and Means, March 12, 1998.

[Back] 2. U.S. Department of Education, National Center for Education Statistics, NCES 95-330, Private Schools in the United States: A Statistical Profile, 1990-91 (Washington, D.C.: Government Printing Office, January 1995), p. 9, table 1.1. While about one-fourth of all K-12 schools are private, only 10.4 percent of K-12 students attend private school. This is because private schools tend to be smaller than public schools, meaning that a relatively large number of actual school establishments house relatively few students. Nonetheless, small schools are proportionately more expensive to run than larger ones – meaning that the eight percent of all K-12 funding received by private schools is a remarkably low figure. See NCES, Private Schools in the United States, p. 11, table 1.2.

[Back] 3. Linda Morrison, “The Tax Credits Program for School Choice,” National Center for Policy Analysis Policy Report, No. 213, March 1998, p. 1.

[Back] 4. Public Agenda Foundation and Institute for Education Leadership (PAF/IEL), Assignment Incomplete (New York, N.Y.: PAF/IEL, 1995).

[Back] 5. Elie Pieprz, “Arizona Leads the Way on School Reform,” Investor’s Business Daily, May 13, 1997.

[Back] 6.Douglas P. Munro, “Reforming the Schools to Save the City, Part II: Survey Shows School Choice Would Prevent Middle-Class Flight from Baltimore City,” Calvert Issue Brief, Vol. I, No. 2, Aug. 1997, p. 12.

[Back] 7. Jeffry L. Flake, “Educating Arizona: Credit Where Credit’s Due,” Calvert News, Vol. II, No. 2, Spring 1997, p. 6.

[Back] 8.Taken from a forthcoming poll to be released by the Strategy Research Institute. Material provided by the Goldwater Institute, Phoenix, Ariz., March 11, 1998.

[Back] 9. Clint Bolick, “Precedents and Pitfalls: How to Create a Successful School Choice Program,” Calvert News, Vol. II, No. 4, Fall 1997, pp. 4-5, 16-18, at 4.

[Back] 10. Supreme Court of Arizona, “Respondent’s Response to Petition for Special Action,” in the case of Penny Kotterman et al., Petitioners v. Mark W. Killian, Respondent, No. CV 97-0412-SA, p. 9.

[Back] 11.Suzanne Smith, American Civil Liberties Union, verbal testimony at a hearing before the State of Maryland, General Assembly, Committee on Ways and Means, March 12, 1998.

[Back] 12.Maryland State Department of Education (MSDE), Maryland School Performance Report, 1997: State and School Systems (Baltimore Md.: MSDE, December 1997), p. 9.

[Back] 13.State of Maryland, General Assembly, Department of Legislative Services (DLS), Structure of School Finance in Maryland (Annapolis, Md.: DLS, July 1997), p. 4, exhibit 3.

[Back] 14.Linda Morrison, speaking before a National Center for Policy Analysis and CEO America Capitol Hill briefing on tuition credits, March 10, 1998.

[Back] 15.Morrison, “The Tax Credits Program for School Choice,” p. 9.

[Back] 16.Morrison, “The Tax Credits Program for School Choice,” p. 10.

Posted in: Education, News Series