In Defense of School-Choice Tax Credits

by David French

Robert, I’m beginning to get the sense we’re going to have to agree to disagree on the merits of Arizona’s tax-credit school-choice plan. But before I let our little dispute pass into history, I’ve got to take issue with this statement:

There is no difference between (A) having the government spend money on a program, and (B) having the government give dollar-for-dollar credits so that individuals can “donate” (i.e., divert their tax dollars) to that program. Either way, the government ends up with less money, the individual has not foregone a single dollar, and the program has more money.

I’m not quite sure how you can say there’s “no difference.” The differences are, in fact, vast — economically, fiscally, and conceptually. In every voucher program ever created, the vouchers represent an actual expenditure from the government treasury according to budgeted dollar amounts as limited by the specific appropriation. In a tax-credit program, by contrast, the direct money transfer is not from government to private citizen but from private citizen to private entity (the tuition organizations), and the amount is not a finite, budgeted amount but instead — like normal charitable contributions — defined entirely by the individual choice of the donating citizens. Thus, private choice defines the scope of the program. Whether the tuition organizations spend $50,000 or $50 million is up to the decisions of individuals, not the legislature.

Next, I think it’s misleading to say the “government ends up with less money.” There was considerable record evidence that the tax-credit program actually saved the government considerable money. If Arizona’s private schools were to close tomorrow, vast state expenditures would be required to house and educate tens of thousands of new students. The cost of the tax credit is far, far smaller than the cost of educating a child in an Arizona public school.

Finally, I love your phrase “divert their tax dollars.” I prefer to describe it as being forced to pay less of their own money to the Arizona government. As Justice Kennedy himself said, “Private bank accounts cannot be equated with the Arizona State Treasury.” The starting position for any citizen is that all the money they earn is theirs, not the state’s, and then the individual determines their total tax liability (the portion of their money they pay to the government) according to applicable law. That law creates a marginal income-tax rate but also a myriad of deductions, credits, and other mechanisms that work together to define the actual tax dollars owed. Thus, the effective tax rate has long been quite different from the defined marginal rates, and I don’t think it’s accurate to define the difference as “diverted tax dollars.” I don’t think anyone would describe a lowered marginal tax rate or other tax cuts in that manner, so why define other — less sweeping — mechanisms that lower your tax liability as “diverted tax dollars?”  

If I go to my neighborhood Super Walmart, and I carry with me a bundle of coupons, pick up an extra pack of Viva paper towels because of a two-for-one deal, and then bite the bullet and buy off-brand Four Loko instead of the real thing, I don’t think of the savings as my “diverted grocery dollars.” Instead, I just pay my grocery bill and am happy to have more money in my pocket.

Under the Arizona tax-credit plan, the government ends up with more money because of the vast cost savings inherent in expanded private education, individuals still pay actual money into the program in amounts they determine, and the program ends up with the amount of money the citizens want it to have. That’s a plan conservatives can support.

Phi Beta Cons

The Right take on higher education.