Given the tough economic times, it’s no surprise that many state governments are scrambling in last minute efforts to balance their budgets, or are licking their wounds after having to make major cuts in programs and spending. What will come as a surprise is that there’s a way to reduce government spending while actually expanding the range of services available: education tax credits.
This week, the Cato Institute has released a study co-authored by economist Anca Cotet and myself which evaluates the fiscal impact of a large scale education tax credit program. In every one of five states that this study examined, the program would save taxpayers billions of dollars over the course of its first 10 years in operation (from $1 billion in South Carolina to over $15 billion in New York and Texas). And the annual savings would continue to rise well after that point. In New York, for example, it would reach nearly $5 billion annually by the 15th year of the program. In the process, it would bring the option of private schooling within reach of every family.
The program we studied was Cato’s own “Public Education Tax Credit” (PETC) model legislation. That bill takes its name from the fact that it advances the goals of public education by providing tax credits to anyone who pays for a child’s education. The point of a public education system is to ensure that all children have access to good schools, that they are prepared not just for success in private life but participation in public life, and that our schools foster harmonious relations among the many different groups that make up our pluralistic society. The PETC program accomplishes this by combining two different types of education tax credit programs that are already operating separately in several states. The first is a donation tax credit such as those of Pennsylvania, Florida, and Arizona. Under these programs, taxpayers (either businesses or individuals) receive a dollar for dollar tax credit if they donate to a non-profit organization that provides tuition assistance to families. The second type of program is a personal use tax credit, such as the one in Illinois, under which parents receive a tax cut in proportion to the amount they spend on their own children’s education.
By combining and expanding these two types of already existing and popular programs, it would be possible for states to save enormous sums of money. The reason is that public schools, on average, spend a great deal more per pupil than private schools – thousands of dollars more. Total per pupil spending in the United States in the coming school year will likely be over $12,000 while average private school tuition will be close to $7,500. So, as families migrate from assigned district schools to independent schools of their choosing, taxpayers enjoy considerable savings. What’s more, this program actually helps children who remain in public schools as well, because every time a child moves from the public to the private sector, some of the money allotted to their education by the district is left behind, raising the amount of money available, per pupil, for those who prefer to stay in public schools.
Rather than continuing to place hope in policies like No Child Left Behind, which have done little good but cost scores of billions of dollars, state policy makers should return decision-making power to the people who know children best: parents. Let parents decide which school is best for their children, and force all schools to compete for the privilege of serving each and every one of them. Congress, meanwhile, could help such reforms along by rolling back federal mandates and encouraging their state colleagues to expand educational options through Public Education Tax Credits.
Bold emphasis mine
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