Re: Tax-Credit Voucher Programs

by David French

Robert, I’ve got to take issue with your post on the tax-credit program at issue in the Arizona school choice case before the Supreme Court. First, I should provide a more complete description of the program. Tuition organizations are non-profit organizations that provide scholarships to students in private schools. They can be set up to fund scholarships to virtually any kind of school, from secular to Jewish to Christian to Muslim to Unification Church. The money donated to them is typically tax-deductible, but Arizona allows the first $500 of any such donation ($1,000 for married) couples to function as a tax credit. So the government isn’t “out” $1,000; it’s “out” the difference between the tax deduction and the tax credit (with that amount directly dependent on the tax rate). Or is it “out” anything at all? Every child in private school is one less child in public school, and that’s a net financial benefit to the state.

The government isn’t writing checks to anyone. Instead, private citizens are writing smaller checks to the government if they give to a Tuition Organization — just as they write smaller checks to the government if they give to any charity. This account, from the Wall Street Journal’s coverage of the oral argument, is instructive:

 The case’s other issue is the Arizona program itself, and there the question hinged on whether tuition organizations are truly private institutions or effectively are arms of the state.

Justice Kennedy seemed sympathetic at one point to the latter view, saying a “strong argument” existed for considering the organizations official bodies because the state has “all sorts of rules” about them.

But he turned doubtful when Paul Bender, an Arizona State University law professor representing the plaintiffs, said the organizations “are, on the government’s behalf, distributing tax revenues” because their funds would otherwise go to the state treasury.

“I have some difficulty that any money that the government doesn’t take from me is still the government’s money,” Justice Kennedy said. “If you reach a certain age, you can get a card and go to certain restaurants and they give you 10% credit. I think it would be rather offensive for the cashier to say, ‘And be careful how you spend my money,’ ” said the 74-year-old justice.

Where Justice Kennedy joked, Justice Samuel Alito seemed incensed.

“There is a very important philosophical point here,” he said. “You think that all the money belongs to the government except to the extent that it deigns to allow private people to keep some of it.”

That exchange gets to the heart of the case. Taxpayers give money to nonprofit organizations based upon shared beliefs and shared goals. Arizona has chosen to further incentivize one segment of charitable giving (in the arena of education, which is a public and private function) by giving a relatively modest tax credit.

I don’t think there’s anything dishonest about this.  In fact, there are some good arguments that it’s superior to a voucher scheme, since the extent of the funding depends quite literally on the private choices of Arizona taxpayers.  Want more private education?  Give more to the tuition organizations.  These private choices are outside the budget battles and limitations of state-run voucher programs, and they save the government vast sums of money.  After all, the tuition credits cost much less than the 10,000 per child cost of educating kids in public school.

Arizona’s school choice initiatives are among the most innovative in the country.  I wish Tennessee would look southwest for some bold (and good) reforms.

Phi Beta Cons

The Right take on higher education.