For Freedom in Education: Vouchers or Tax Credits?

New study says vouchers invite regulation; tax credits may not

“If Louisiana wants to give families the best possible educational options… the way to do that seems to be through a combination of education tax credits” – programs that cut taxes on individuals and enable scholarships for low income families. That’s the message from Andrew Coulson, author of a new working paper from the Cato Institute’s Center for Educational Freedom.

At least fifteen states, including Louisiana, have instituted school vouchers or tax credits, or both, to allow more students to attend private schools. These policies assume, not without research justification, that expanding choice and competition will lead to better outcomes.

However, many skeptics of these programs, including Coulson, raise the concern that these policies will in the end prove counterproductive by placing greater regulatory burdens on the very schools that have benefited from their independence from government interference. If fact, Coulson notes that in 1999 “when [he] reviewed the worldwide historical evidence on this question, [he] was not able to find a single large-scale system of government funding of private elementary or secondary schooling that had escaped heavy regulation.”

“Taxpayers want to know what they are getting for their money, and the only way for a government to do that is to impose regulations. So basically it’s an attempt at creating accountability for taxpayers… That’s why government-funded schools around the world tend to much more heavily regulated than independently funded private schools.”

He theorized at that time, though, that tax credits might not lead to the same regulatory burdens that had plagued earlier attempts to foster private schools. “If you don’t spend taxpayers’ dollars through the government on private schools, then this justification for regulation goes away.”

Caroline Roemer Shirley, director of the Louisiana Association of Public Charter Schools, does not share this interpretation. While her members’ views are “mixed” on whether financial incentives ought to be offered to private schools, essentially all members believe “there has to be accountability” with both school voucher and tax refund programs, particularly when money for charter schools comes with so many requirements.

Tax credits allow parents of private school attendees to deduct a certain amount from their tax liabilities or for individuals to make tax-deductable donations for private school scholarships. The donation mechanism allows for poorer students to benefit as well, since their parents may not have tax liabilities to write off. The difference with tax credits is that no new money flows through the hands of departments of education or school boards. Rather, Coulson argues that “the tax burden on other taxpayers goes down when parents opt out of the government school system… because the tax benefits are always much less than the per-pupil cost of the government system.”

With the recent expansion of voucher and tax credit programs in the United States, Coulson wanted to test his hypothesis. Do relatively conventional voucher programs – where governments write a per-student check to participating private schools – create a heavier regulatory burden than tax credits? Although his sample size was small, with 20 programs within the 15 states, he was able to find statistically significant results, upheld by two methods of data analysis (multi-level regression modeling and an ordinary least squares regression).

Click here to read the full article and to hear an interview with the study’s author.

Fergus Hodgson is the Capitol Bureau Reporter with the Pelican Institute for Public Policy. He can be contacted at [email protected], and one can follow him on twitter.

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