Phi Beta Cons

The Right take on higher education.

Tax-Credit Voucher Programs and Government Revenue


Robert, I have to disagree with one of your factual assertions regarding tax credits. In Friday’s post, you wrote:

When someone pays $1,000 less in taxes, redirecting that money to a particular area (K-12 education in this case) that’s $1,000 that won’t be divided amongst the entire budget. The government, in turn, directs a little less of everyone else’s money toward that area, and a little more of everyone else’s money toward everything else. It doesn’t matter whether there’s “intermixing” between the “donations” and the other tax receipts in a “pot” of money. In the end, the total outlays are exactly the same as they would have been had the government allocated the money to the special area itself — that is, had the government had the guts to pass a voucher program that directly gave government money to students to spend at private schools.

Yet the impact on total outlays of Arizona’s program isn’t “exactly the same” as a voucher program; it’s actually unknowable but likely quite different. If you look at the Arizona program, you’ll note two key facts. First, a parent cannot get the tax credit for donating to their own child’s education. To the extent this has an impact on participation, I think it means fewer people will participate and thus the impact on tax revenue would be less than a voucher program. Second, even childless couples or individuals can get the tax credit if they donate to a scholarship organization. This can mean higher participation and greater revenue flows to private schools.

At the same time, the entire line of reasoning raises the question of whether the tax-credit system incentivizes private education to such an extent that the program is actually profitable to the government because fewer kids in public schools means fewer demands on public resources.

The bottom line is that the impact of the tax credit program is so speculative that it’s literally impossible to say that the program is (from a revenue standpoint) “exactly the same” as a voucher program. It’s even unknown whether the program costs or saves the taxpayers money. (Which is one of several reasons why we’re challenging the plaintiffs’ taxpayer standing in the case. The plaintiffs can’t even define their harm).


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