School Choice via the Universal Tax Credit

Separating School from State Represents a Bright Future for All Children

School choice—the general concept that parents should have much more freedom and responsibility for their children’s education than they have now—is an idea that has captured the imagination and support of legions of freedom-loving Americans. Where the rubber hits the road, however, is how to achieve it.

When all parents understand that a truly free society means that it is their responsibility to take care of their children’s education, not that of everyone else in general or agents of the government in particular, we’ll have the best of all worlds. Freedom will be greatly enhanced, and the competitive market will do for schools what it has done for everything from cheeseburgers to computers—produce high quality at a good price. Complete separation of school and state will put parents back in the saddle and liberate schools and teachers from incessant meddling by politicians.

Separation is the ideal, the goal we should all hope for and work toward. But since no one has the power to snap his fingers and make it happen tonight, some means for moving in the right direction as quickly as possible, consistent with liberty, is required.

Would vouchers get us there? Tax-funded vouchers are simply direct payments from the government to individuals to enable them to purchase a particular good or service—in this case, education—in the open market. Those payments can be in the form of checks that the beneficiaries deposit in their bank accounts and draw on to pay for the vouchered item. Or they can be coupons that beneficiaries give to private providers of the vouchered item; the providers then redeem them for cash from the government.

It’s abundantly evident that the opposition has succeeded in stigmatizing vouchers to the point where “the V-word” is shunned even by proponents. A significant number of private schools that might be eligible for vouchers don’t want to touch them with a ten-foot pole because they understand that government shackles inevitably follow government shekels. Fortunately, there is a superior option that is not only more in line with the principles of liberty, but is more politically viable as well. That option is tax credits.

Tax credits are designed to provide parents with tax relief linked to expenses incurred when they send their children to nongovernment schools. The credit is usually a dollar-for-dollar reduction in income or property taxes, unlike a tax deduction, which merely reduces taxable income.

Proponents of educational tax credits prefer them to vouchers on the grounds that they entail less government regulation of private schools and less risk of entanglement between church (through religious schools) and state because of their indirect nature. Unlike vouchers, credits do not transfer money from the state to schools or taxpayers.

Indeed, because vouchers are funded out of taxpayer money, some citizens will always argue that “Some of my money will be going to send your child to a school I don’t like.” They will want government to regulate how, when, and where their tax money can be used. The legislators who appropriate it and the bureaucracy that dispenses it will be more than happy to oblige. With private schools dependent on voucher revenue, few will be able to wean themselves away when regulation becomes invasive.

Tax credits don’t represent a claim by anyone on someone else’s wallet. You don’t get the credit if you don’t pay tuition or if you don’t pay taxes. A credit on your taxes represents your own money, period.

School Stamps

Here’s another way to see this crucial difference: Vouchers are food stamps for education, a mechanism for the forcible redistribution of wealth from many citizens to some citizens. Tax credits are mechanisms for fairness, an accounting device that permits people to keep at least some of their own money they would otherwise pay for the government school they are not using.

Some prefer vouchers to tax credits because, they argue, we should not use the tax system as a social-engineering tool. But a tax credit for education is fundamentally different from a tax credit for solar panels or electric cars or any other politically correct gimmick du jour: Not only is education mandatory, but taxes to pay for it are too, a sad fact that’s not likely to change soon. A tax credit designed to get you, say, to buy a solar panel is not the same as one that refunds some of what the government charges you for something you don’t want to buy anyway. Most people are instinctively sympathetic to the element of fairness in a tax credit.

What about parents who have little or no tax liability?

The “universal” tax credit, which the Mackinac Center for Public Policy first proposed in 1996, allows any taxpayer—individual or corporate, parent or grandparent, neighbor or friend—to qualify for a dollar-for-dollar credit by contributing to the education of anyone’s child. It envisions private scholarships financed with tax-credit money.

Would tax credits be sufficient to encourage businesses to contribute to scholarship funds? After explaining the concept, I’ve asked CEOs all over Michigan this question: “Suppose you had a choice. You could send a million dollars in taxes to government for the politicians to spend. Or you could send that million to one or more scholarship funds to help children who might be your future employees get a good education. Which would you do?” I’ve never met one who preferred option number one.

Any school-choice plan should start with the recognition that private schools are not the problem we face today. They are an important part of the solution. We must not bargain away their independence to get choice even if it’s in the form of a universal tax credit. We must not burden them with new government mandates cloaked in the guise of “accountability.” Private schools are already accountable—unlike the government’s schools, they have customers who can take a walk.

Some libertarians oppose a universal tax-credit plan because they see it as a halfway measure that doesn’t immediately remove government from education. However, it would allow people to “opt out” of the government school system and use their money to buy education in the marketplace instead. True, it doesn’t eliminate the government system for those who still want it, but it will do more to promote an array of flourishing, affordable, and attractive private options than any other politically viable plan afoot.

In time, that will make it easier to convince almost everybody that separating school from state represents a bright future for all children.

More by Lawrence W. Reed