December 8, 2000

A New Option For School Choice: Universal Education Credits

Study outlines proposal to maximize parental choice and educational competition

WASHINGTON — Voucher initiatives in California and Michigan suffered defeats at the polls last month, but vouchers aren't the only way to give parents more choice over where their children go to school. A new Cato Institute study being released today argues that universal education tax credits, which would allow taxpayers to subtract from their state tax bills money spent on education, are the best way to create a more decentralized and competitive education marketplace.

In "Reclaiming Our Schools: Increasing Parental Control of Education through the Universal Education Credit," Darcy Ann Olsen, director of education and child policy at the Cato Institute, and Matthew J. Brouillette, director of education policy at the Michigan-based Mackinac Center for Public Policy, propose a universal education credit that would allow any taxpayer — including parents, individual taxpayers and businesses — to receive a dollar-for-dollar reduction in tax liability for money spent on tuition. The credit would be capped at one-half of the per pupil expenditure in the public school system, and taxpayers could take the credit for more than one student as long as the combination of credits wouldn't exceed their state tax liability.

"Unlike traditional credits, the universal education credit has been uniquely designed to assist families with limited or no tax liability," the authors write. By allowing any taxpayer or business to divert state taxes to education tuition, universal education credits would likely generate large pools of scholarship funds for students in need, as in Arizona, where a new tax credit raised roughly $14 million.

"Because vouchers transfer public funds to independent schools, legislators feel compelled to oversee and regulate the use of those `public funds,' and thereby vouchers often invite new regulation of private schools," Olsen and Brouillette write. "Credits, however, simply allow parents to direct their own money to a school of choice or allow taxpayers to direct their money toward scholarships," allowing private schools to maintain their independence and avoid government interference.

Universal tax credits are also the best way to create a truly competitive education market, the authors say. Under the current education system, parents seeking independent education have to pay twice: once for the state-run schools they aren't using and a second time for tuition at an independent school. Credits would "reduce the financial penalty borne by parents who select and pay for their children's schools," creating a more level playing field between public and private options in education, they argue.

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