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Finance Experts Weigh Benefits, Liabilities of Tuition Tax Credits

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Philadelphia--Conceding that little is known about the financial and educational implications of tuition tax credits, school-finance specialists meeting here this month turned largely to theoretical, philosophical, and legal analyses of the issue.

"Privatization," as participants called it, was one of the most-discussed subjects at the annual meeting of the American Education Finance Association, March 18-20. And while most participants seemed convinced that the federal government's 1983 deficit, now projected at more than $90 billion, will prevent federal aid to private schools next year, they were equally convinced that the debate is very much alive and is likely to intensify.

According to one estimate, based on current attendance patterns and a tax credit of $250, the Treasury would lose approximately $1 billion per year. If the credit were raised to $500, the revenue loss would reach $1.5 billion, according to David A. Longanecker, formerly a researcher with the Congressional Budget Office.

Conference participants generally agreed that some students would transfer from public to private schools if tax credits were enacted, although few were willing to predict how many students would do so or what types of private schools they would choose.

And most participants seemed to agree with Thomas Johns, staff director of the Education Department's office of adult and vocational education, who said: "I think it would probably be beneficial to the shifted students in terms of academic achievement. It think it would probably be harmful to the non-shifted students. If the most able students are withdrawing, standards are likely to go down. We've seen this happen in city after city. And the public commitment to schools might decline."

Lack of Information

Public aid to private schools--or to private-school students--"would certainly increase segregation," Mr. Johns added, "because the benefit would be to whites primarily. I don't think there's any use in trying to disguise who would benefit."

But the researchers and public-school financial administrators were troubled by the lack of reliable, specific information about the implications of such an aid plan.

"Despite the vehemence of opinion on this subject," said Robert E. Klitgaard, associate professor of public policy at Harvard University, "I'm surprised at how little evidence I've seen that would convince me one way or the other."

Of the many countries that give government aid to private schools, Australia may be the most similar to the United States, suggested Joel D. Sherman, a researcher with the National Institute of Education. Australia, he noted, has a federal structure, a tradition of common law, and a constitution similar to that of the U.S.

More than 20 percent of Australian students are in private schools, Mr. Sherman said; more than three-quarters of these attend Catholic schools, with the rest in nondenominational or other religious schools.

Australia began its system of government aid in the 1950's by making private-school tuition tax-deductible. Eventually, this evolved into a $250 tax credit, and private schools became eligible for certain forms of categorical aid as well, in programs for science education and libraries, among other purposes.

In the 1970's, private schools began receiving block grants, to help cover operat-ing and capital costs, from the commonwealth government--that country's equivalent of the U.S. federal government. The commonwealth grants are distributed according to a school's need under an equalization formula similar to those used by most states in the U.S.

In addition, the commonwealth has maintained categorical programs for migrant and handicapped children, in which private schools are eligible to participate.

"All aid [in Australia] is to bring schools up to minimum standards," Mr. Sherman stressed. "Aid is based on need. It was an effort to increase the overall level of quality and provide equalization and special categorical assistance."

The commonwealth government now contributes about 40 percent of private schools' budgets; another 20 to 25 percent comes from the states.

"After the inception of large-scale aid in the 1970's, there was pretty much widespread public acceptance," the researcher said. But the plan was adopted during a period of economic expansion, he noted; as Australia's economy tightened, "eventually there became more competition, and it was challenged in the High Court, which is the equivalent of our Supreme Court."

Despite a provision in Australia's constitution that prohibits the government from establishing "any religion"--a provision similar to the Establishment Clause in the U.S. Constitution, which has been construed as barring direct government aid to religious schools--Australia's highest court found the aid scheme to be acceptable. The court's reasoning, Mr. Sherman said, was that the financial-aid system did not advance any particular religion.

It is important to note, the researcher said, that the plan to aid private schools "was incorporated into aid schemes for government schools," and that it developed gradually, perhaps enhancing its political acceptability.

Possibly as a result of government aid for the construction of new private schools, they are increasing in number in Australia, and private-school enrollment is increasing while enrollment in public schools is declining, said Mr. Sherman.

Furthermore, he said, "a strong degree of competition has developed between the government and private schools."

'Quality and Equality'

"In this country, I think we tend to view quality and equality of education as being in conflict with one another," Mr. Sherman contended. "Australia has demonstrated that they are not in conflict."

Government control--much feared by many American private-school officials--has not accompanied government aid in Australia, he said. Although the "educational establishment" there has pressed for stricter standards for fundamentalist religious schools, regulation now appears to be limited to health, safety, and accounting.

Denis Doyle, education-policy analyst for the American Enterprise Institute, remarked that the Australian system's equalization formula appears to create a "perverse incentive." "It's very difficult to imagine how that's done without encouraging parents to contribute less rather than more," he said.

Mr. Klitgaard of Harvard reached a similar conclusion about public aid to private schools, but based it on different information.

"I would expect that parishes would contribute less" if tax credits or some other form of government-aid program were enacted in the United States, he said.

"This happened in higher education when middle-income kids became eligible for federal aid. The schools started giving fewer scholarships based on need and more based on merit. There were fewer parent contributions."

Government aid would not only discourage voluntary contributions to private schools, contended Richard Murnane of Yale University, but it would probably not help many more low-income children gain access to private schools.

"The Catholic schools would have to raise their tuition," he predicted.

Mr. Murnane noted that more statistical information is becoming available on the characteristics of private schools and their students, and he urged fellow researchers to use the new data to find out more about the potential effects of tax credits--particularly on the mix of students in a school, which he termed an important determinant of achievement.

Using data from the National Center for Education Statistics' High School and Beyond, the project that spawned James S. Coleman's now-famous 1981 study, Public and Private Schools, Mr. Murnane has found--as Mr. Coleman did--that the average public-school student would improve his or her academic achievement by transferring to a Catholic or other private school.

But, Mr. Murnane added, opening up private schools to anyone who wished to attend would reduce the academic benefits. "If the student [who transferred to a private school] also took along his public-school classmates, 60 percent of the difference in Catholic schools disappears, and all of the difference disappears in other private schools."

Mr. Murnane also argued that government aid to private schools "would inevitably alter the regulatory environment, and it would change the way sorting of students takes place."

Church-State Questions

The constitutional provision for the separation of church and state was cited, as it often is, as an argument against tax credits or other forms of aid to private schools.

The Supreme Court has ruled in numerous cases that government assistance is unconstitutional if a "primary effect" is the advancement of religion; aid schemes must have a secular purpose in order to meet this test.

But Edward M. Gaffney Jr. of the University of Notre Dame contended that both the government and the Court have been inconsistent on the issue.

For instance, he noted, "The Justice Department has argued that Title I [provided in private schools] was not aiding religion but was a needed educational benefit for disadvantaged kids."

Furthermore, he said, the Court has declined to consider social-science evidence showing that private schools do have the "secular purpose" of improving education--although it has willingly considered such evidence in other education cases, most notably those involving desegregation.

"The primary-effect test requires historical or empirical evidence of what the statute will do," Mr. Gaffney maintained. "The Court has not cited a shred of evidence about religious schools."

"There's a lot of controversy about Coleman's work," he said. "I think it's high time these controversies surface in constitutional law."

He further claimed that the Court refuses to consider evidence on the effectiveness of inner-city Catholic schools "because the Court helped to create the problem." In ruling against urban-suburban desegregation in the absence of interdistrict constitutional violations (Milliken v. Bradley, 1974) and against federal-court remedies to inequities in school finance (San Antonio Independent School District v. Rodriguez, 1973), Mr. Gaffney contended, the Court contributed to the deterioration of urban schools--which in turn led many minority-group parents to enroll their children in Catholic schools.

Curricula Suffused

Kern Alexander of the University of Florida, however, argued that religion suffuses the entire curricula of most church-affiliated schools.

"It is fruitless and fallacious for the Supreme Court or anyone else to say there are secular subjects that the state can aid," he said. "To say that the Supreme Court is confused is not to reduce the whole issue to a non-issue."

Tax credits, he added, "would tend to create educational conditions which I believe would be counter to social cohesion and socialization. Social class and caste are very important to consider. The rich would be helped more than the poor."

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