The Public Policy

Round Yon Tax Credit

All parents want for Christmas is a different school.

By 12.20.07

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A poll released last week by the Illinois Policy Institute and the Friedman Foundation revealed a surprising item on the Christmas wish lists of Illinois parents: a new school for their kids. Four out of five Illinoisans said they would opt out of traditional state public schools if given the chance. And they would choose private schools over public by a margin of two to one (39 percent to 19 percent).

Legislators can help grant that wish and save money at the same time. How? By expanding the state's education tax credit program.

Education tax credits are a great way to use private funds to improve education and expand school choice for all families while saving taxpayers money. The credits reduce the amount a taxpayer owes the government for each dollar he spends on education. If a business donates $4,000 to a scholarship-granting organization, it could deduct $4,000 from its tax liabilities. Similar benefits for donations can be applied to individuals or to parents on education expenses for their own children.

Education tax credits, in other words, come in two forms. The first, tax credits for donations to scholarship organizations, can help support school choice for lower-income families. And the second, personal-use credits, can help middle-class families.

Tax credits save the states money because the amount spent on each student on average is so much less. According to the National Center for Education Statistics, public schooling costs around $10,700 per child, while private-school tuition averages around $7,300.

Education tax credits cover just what a family needs to send their child to a better school and turn what's pocket change to an education bureaucrat into a lifeline for thousands of children.

Three states now have modest forms of personal-use tax credits. Iowa allows 25 percent up to $1,000, and Minnesota allows 75 percent of non-tuition expenses up to a maximum credit of $1,000 per child.

Illinois allows families to claim credits worth 25 percent of their educational expenses up to $2,500, which means a small $500 tax benefit. That's far too little to save much money or expand choice significantly. Lawmakers should build on current law by allowing a 100 percent credit on education expenses up to half of current per-pupil spending in the public schools for each child.

But a personal-use tax credit won't be enough for many lower-income families without a large tax liability. That's why lawmakers also need to pass a donation tax credit program for scholarships.

Five states -- Arizona, Florida, Iowa, Pennsylvania, and Rhode Island -- have serious donation credits. Pennsylvania allows a 90 percent credit for donations to scholarship-granting organizations and Florida allows a 100 percent credit, helping thousands of children from lower-income families attend good, independent schools.

Tax credits have already been expanded in a number of states, with the support of people that you might not expect. Democratic legislatures or governors helped to pass tax-credit programs in Arizona, Rhode Island, and Iowa last year, and Pennsylvania expanded its existing program.

This year a unified Democratic government in Iowa increased the tax-credit dollar cap by 50 percent to $7.5 million from $5 million. Many prominent African-American Democrats -- most notably, Newark Mayor Cory Booker -- support tax credits. Even New York's Democratic Governor Eliot Spitzer supports tax credits and proposed an education-tax deduction in his first state budget.

So there should be plenty of bipartisan cover for Republicans and Democrats in the Illinois legislature to come together and promise taxpayers they'll do right by their children this Christmas -- and make good on that pledge in the New Year.

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About the Author

Adam B. Schaeffer is a policy analyst for the Center for Educational Freedom at the Cato Institute.