Tuition Tax Credits: Vouchers in Disguise

By Barbara Miner

“…With vouchers, your son could afford a fine private school education…for about two weeks…”

I have been writing about vouchers for more than a decade. Hardened as I am to often arcane voucher debates, three words still send shivers into my brain.

Tuition tax credits.

Please, don’t stop reading. Yes, taxes scare everyone. And only nerdy policy wonks – you know, the ones with plastic pocket protectors in their shirts and combination watch/calculators on their wrists – like to talk about taxes.

But as they say, death and taxes are two things you can’t avoid in life. Since you can’t avoid the controversy about tuition tax credits, you might as well learn a little. And I promise I won’t make any references to obscure tax codes (such as Form B, page 3A, line 2C, if you said “no” on line 8 on page 5.)

If you think tuition tax credits aren’t worth worrying about, think again. While there are only three voucher programs – in Cleveland, Milwaukee, and a statewide program in Florida – there are six statewide tuition tax credit schemes, and most passed in recent years.

“There is definitely more momentum behind tuition tax credits,” notes Matt Jacob, spokesperson for People for the American Way. “They have the same effect as vouchers, but they don’t scare the public as much.”

Or, as Joe Overton of the ultra-conservative Mackinac Center for Public Policy said in explaining why Michigan conservatives are focusing on tuition tax credits after that state’s voucher referendum failed miserably in 2000: “In Michigan, the word ‘voucher’ is radioactive. Tax credits are much more politically viable.”


The term tuition tax credits is popularly used to refer to various tax-based programs that funnel money to private schools. There are two main approaches: tuition tax credits and tuition tax deductions.

Under tax credits, an income tax bill is directly reduced. If you owe $4,000 in taxes for the year and you are eligible for a $500 tuition tax credit, you only have to pay $3,500 in taxes. In essence, the government has given you a gift of $500 to offset your private school tuition.

A tax deduction reduces the taxable income used to calculate how much you owe in taxes. Let’s say your taxable income is $50,000 but you are eligible for a state’s $1,000 tuition tax deduction. You would then pay taxes based on a taxable income of $49,000.

Fundamentally, tuition tax credits are a way to use public policy to increase the money going to private schools and to relieve the financial burden on middle- and upper-income families with children already in private schools. “Tuition tax credits are an offshoot of the voucher concept,” notes Marc Egan, director of the Voucher Strategy Center for the National School Boards Association. “They are an attempt to drain critical dollars from public schools. While vouchers are a direct drain, tuition tax credits do the same, but through the tax code.”

Even privatization supporters note the inherent link between vouchers and tuition tax credits. As Andy LeFevre, head of the education task force of the ultraconservative American Legislative Exchange Council puts it, with tuition tax credits “the end goal is the same as the voucher; it’s just a different way to come about it.”

While the major supporters of tuition tax credits have historically been the Catholic Church and other religious institutions, the rhetoric has shifted in recent years to tax credits as a vehicle of “choice” and “marketplacebased competition.” In this reincarnation, tax credits are promoted as education reform. And, taking a page from the voucher movement, supporters have found it’s easier to pass tuition tax schemes if they are clothed in the mantle of helping poor kids.


As part of his as-yet-unpassed federal budget, President Bush proposed a tuition tax credit scheme that would siphon off an estimated $3.7 billion over five years. The proposal, linked to the No Child Left Behind legislation, provides a tax credit of up to $2,500 a year to offset private school tuition for a child leaving a so-called “failing” public school. The tax credit would cover 50 percent of the first $5,000 spent on K-12 education – meaning parents would be required to pick up the other 50 percent. Despite administration proposals for a tax rebate for low-income families, the program is still unlikely to benefit low-income families that don’t have thousands of extra dollars around to pay for private school tuition.

And, of course, those tax credits come at the expense of adequate funding of public education. According to the National Education Association, “The Bush tuition tax credit plan would provide more than 1.5 times as much money per child for children to attend private and religious schools than [the federal government] currently provides per child to public schools to improve student achievement for low-income students.”

Two bills have also been introduced in the House, one promoting tuition tax credit and the other a tuition tax deduction, but neither have made much headway. As with vouchers, the real action is at the state level.

There are currently six statewide tax credit programs – Minnesota, Iowa, Florida, Pennsylvania, Illinois, and Arizona. A look at Illinois and Arizona highlights the two main approaches.

The Illinois program, passed in 1999, allows families to receive up to $500 as a state income tax credit for educationrelated expenses. Because the credit is calculated at 25 percent of the educational spending, a parent must spend $2,250 to receive the full credit.

Supporters claimed the bill would help poorer families because it would give them a broader range of choices. The pro-voucher Institute for Justice in Washington, D.C., even said the law’s impact “will be greatest on families of modest means.”

But the Illinois bill was classic bait and switch. According to tax returns for 2000, the first year the tax credits were in effect, taxpayers with an income of $80,000 or more received 46 percent of the total credit given out. Taxpayers earning $60,000 to $80,000 received another 20 percent. Taxpayers making under $20,000 a year received less than 3 percent of the credits.

“It probably has not served its intended purpose,” Glen McGee, the state’s former superintendent of education, said in the Chicago Sun Times on Oct. 22. “Maybe I was naive. I said this was going to benefit poor kids. I think primarily it has benefited the middleclass families that had already made the decision to send their kids to private schools.”

The credit is expected to reduce state revenues by $65.9 million this year. State officials say it is merely a coincidence that Gov. Ryan and state legislators are cutting $64.5 million from the public education budget.

Arizona provides a look at an increasingly popular wrinkle in tuition tax credit schemes. The legislation, passed in 1997, is disguised as a scholarship program. It allows up to $625 for families and $500 to individuals in state tax credits for donations to nonprofit groups providing private school scholarships to K-12 students. The credit is dollar for dollar; if you donate $500, you get a $500 credit.

The program is noteworthy for its complete lack of accountability. There are no regulations requiring the nonprofit scholarship groups to disclose how or why they made grants, nor any obligation to limit the grants to students already in private school, nor any requirement that even a token percentage goes to low-income families.

And here’s an interesting twist. To prevent outright fraud, parents were prohibited from making a donation to a scholarship group and designating their own child as the beneficiary. But they could name non-dependents as beneficiaries. According to an investigation by the Arizona Republic, some parents wrote $500 checks for children of their friends or neighbors, who in turn, reciprocated.


In an attempt to portray the proposal as pro-public education, the state offered credits for donations to public schools to offset the costs of extracurricular activities. Not surprisingly, wealthier schools benefited most. According to an analysis last spring by the Education Policy Studies Laboratory at Arizona State University, the wealthiest quarter of public schools received more than five times as much money under the program as the poorest quarter.

Wealthier parents, for example, used the tax credit to send their children on out-of-state field trips, such as band trips to Vancouver and New York. Former Superintendent of Public Instruction Lisa Graham Keegan, a darling of education conservatives, used the credit to get back $200 of the $300 she paid for her son’s trip to Catalina Island off the California coast.

As Egan of the NSBA noted, “And this is supposed to be a program on the cutting edge of education reform?”

One has to forgive Egan his cynicism. It’s hard to hear the phrase tuition tax credits and not wonder what scheme the conservatives have cooked up this time.

But in the end, you don’t have to worry about the fine points in answering such a question. Just remember: Tuition tax credits have nothing to do with providing poor kids with educational choices. They are merely a way to use public policy to funnel money to private schools at the expense of adequately funding public schools.

In the final analysis, they’re not complicated at all.

Barbara Miner is the former managing editor of Rethinking Schools.

Winter 2002/2003