School Choice & Charters

New Reports Debate Ariz. Tuition Tax Credits

By Darcia Harris Bowman — September 26, 2001 3 min read
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Two Washington groups on opposite sides of the battle over public financing for private schooling released dueling reports last week on Arizona’s 4-year-old tuition-tax-credit program.

The Cato Institute, a Washington-based free-market think tank, praised the program for “giving parents choices” about where to send their children to school and saving taxpayer dollars at the same time. On the other end of the political spectrum, the People for the American Way Foundation, a liberal watchdog organization, also in Washington, called the initiative “a model to avoid” that is “seriously undermining public education.”

“The Arizona Scholarship Tax Credit: Giving Parents Choices, Saving Taxpayers Money” is available from the Cato Institute.

“A Model to Avoid: Arizona’s Tuition-Tax-Credit Law” is available from The People for the American Way Foundation.

The arguments may sound familiar to those who have followed the debate over private school vouchers. But with that concept mired in legal and political fights at the federal level, tax credits may be the next flash point.

“Voucher proponents have made it clear themselves that this is the next battlefield [because] vouchers have not done well in the polls, and they have not done well in the courts,” said Dwight R. Holmes, the education policy manger for the People for the American Way Foundation and an author of the group’s report on the Arizona tax credit. “Our case is, this is public money, and any time the state gives a tax credit, they are, in fact, reallocating public money—money that could have gone to help schools in high-poverty areas.”

Supporters of school choice acknowledge that they see some attractive qualities in Arizona’s program that are missing from the voucher idea.

“I think that for people who are concerned that vouchers might one day lead to more government intrusion into private schools, the tax credit really is a great way to help kids without increasing the potential for government regulation,” said Carrie Lips, the author of the Cato Institute report.

Help for the Poor?

Arizona policymakers created the $500 tax credit in 1997 for contributions to organizations that give students scholarships to attend private and religious-based elementary and secondary schools.

The policy immediately faced legal challenges, and teachers’ unions and other opponents urged the U.S. Supreme Court to review the Arizona Supreme Court’s ruling that the program did not violate federal or state constitutional prohibitions against government aid to religion. The high court declined to take up the appeal. (“High Court Leaves Tuition-Tax-Credit Ruling in Place,” Oct. 13, 1999.)

From 1998 to 2000, Arizona’s tax credit generated roughly $32 million for more than 30 scholarship organizations, according to state data. That money, in turn, subsidized 19,000 scholarships.

The Cato Institute contends the scholarships are “overwhelmingly” directed to the poor. At the same time, however, the group’s report acknowledges that scholarship organizations may have different definitions of low-income families, and it concedes there is no breakdown of scholarship recipients’ income.

Critics like the People for the American Way Foundation charge that children of middle- and upper-class families—not the poor—benefit most under the Arizona tax-credit program. The law does not specify that scholarships be based on need, and many of the awards are too small to help impoverished families afford the tuition at most private schools, Mr. Holmes argued.

Moreover, the tuition organizations “say the first priority on their list is kids already in private schools,” he contended. “The fact that they’re already in a private school leads to the conclusion that their families can afford the tuition.”

Supporters are hoping the program’s reach will broaden in time to include more needy public school students. Cato estimates that by 2015, the scholarship credit will be raising $58 million a year in Arizona, underwriting at least 35,000 scholarships annually, and helping a minimum of 11,000 public school students attend private or religious institutions.

In the meantime, Ms. Lips said, the program is still doing well. “I think a lot of people hope this eventually helps people who don’t have the finances to send their children to private schools, but I certainly don’t think it’s a failure to give people already paying for public schools with their taxes a little help paying for private schooling for their own children.”

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