By Billy Hamilton
Suppose that companies that owe taxes to the state could donate money to a private group that would pick children to receive private school scholarships, and in return, the companies would get a tax break. Would that be good policy?
The Texas Legislature soon will debate this question. But, if you aren’t one of the corporations or the tiny percentage of families getting a tax break or scholarship and, like most Texas families with children, you rely on public schools, you already know the answer: No, it’s not.
Why would we create such a complicated way of paying for a tiny percentage of students to attend private schools when our public schools desperately need resources for the 5 million students they educate annually? The answer: these corporate tax credits are meant to conceal something else—school vouchers.
Vouchers are a way of providing government funding to parents to pay tuition at nonpublic schools, generally private or parochial schools. The tax variation, sometimes called “tuition tax credits,” creates a more indirect route to the same result. A taxpayer donates money to a specially created private nonprofit group. The group bundles the donations and awards scholarships to families of its choosing to use as vouchers to pay tuition at a private school, also of its own choosing. The state backfills the funding, reimbursing the company through tax credits. This money would have otherwise gone to state coffers.
Why clutter up the tax code with tax breaks for a few businesses or individuals instead of just enacting a voucher program? Voucher programs have been proposed in Texas before and have proved unpopular. In fact, they’re unpopular in many states. “Tuition tax credits” were first proposed in Arizona in 1997 as a way of getting around the stigma of vouchers. The sponsor of the Arizona legislation even boasted that voucher opponents called his plan “fiendishly clever” because of the smokescreen it created. Things aren’t called “fiendishly clever” if they are straightforward proposals with straightforward goals.
Tuition tax credits aren’t about tax policy or about investment in schools; they’re about getting a voucher program on the books that can be expanded over time. That’s why critics have been called the tax credits “backdoor vouchers” and “neo-vouchers.” Either way, they’re the wrong answer.
Since Texas (luckily) has no personal income tax, these tax breaks would be limited to businesses. Proponents claim donations will help families pay their private school tuition and that will relieve the enrollment burden on public schools or provide access to good schools for disadvantaged students. That’s the sales pitch. In reality, the result is to hand tax dollars over to private schools, increasing the financial strain on public schools and possibly increasing local property taxes in the process to make up for lost funding.
Setting aside the effects on public education, the tuition credit idea should be rejected as a matter of tax policy alone. Education is important, but what makes this particular program worthier of tax breaks than donations to a thousand other good causes? What makes this cause more worthwhile than donations to public schools? Why this tax break and not others? There are no good answers.
We don’t know what a Texas version of this corporate tax credit program would look like or who will benefit, but whatever shape it takes, we need to keep in mind the experience in other states. States such as Florida, Pennsylvania, and Georgia have all had problems with the programs at various times because they’re designed with little or no public accountability. Companies should be free to donate money to private nonprofits if they want, but if the donations effectively come out of the state treasury, my 30 years around government tells me someone better be following the money or a scandal will happen eventually.
These tax credits aren’t just bad tax policy; they’re gimmicks—gimmicks used to conceal bad policy. Public schools don’t need gimmicks. They need the Legislature’s full support in educating the state’s children.