SepCon '98: Vouchers, Tax-Credits, and Separation
by Ari Armstrong. January 1999
Milton Friedman is primarily responsible for the contemporary movement vying for school vouchers, an idea Friedman discusses in Free to Choose. The basic idea has been around much longer, of course: Thomas Paine discussed subsidizing poorer students' education with tax money. Education tax credits are the recent variation of the voucher proposal.
Colorado voters recently struck down by a wide margin an education tax credit ballot initiative, just as they denied a voucher proposal years ago. Marshall Fritz, founder of the Separation of School and State Alliance, would breathe a sigh of relief at the rejection of such measures. Fritz strongly opposes vouchers and tax credits because they make schools more heavily dependent on the government, thereby increasing government control of schools. On this issue, I agree with Fritz completely.
Of course, the November vote doesn't stop the state legislature from considering different ways of funneling tax dollars to otherwise private schools. In the 1998 session, state legislators, led by a broad coalition that includes Representative Penn Pfiffner, considered allowing people to funnel their tax dollars to K-12 scholarships for use by practically any school in Colorado. This proposal is the brain-child of Martin Angell, founder of the Every Church a School Foundation, who debated his idea with Fritz at SepCon '98.
The so-called "school choice" ideas are revised with each new legislative proposal and can vary extensively in their details. However, the proposals can be separated into three broad classes: vouchers, tax credits for families, and tax credits for scholarship donors. Vouchers and family credits compete for attention, but either of these could be implemented along with donor credits, though I have not yet heard of any efforts to combine any two of these proposals. We will here examine each of the three variants.
With vouchers, long supported by newly elected US Congressman Tom Tancredo, the government subsidizes students' education directly by issuing a "voucher" to each family with students. The voucher represents a certain number of tax dollars and can be redeemed only by the school that receives the voucher from the family. In the typical voucher proposal, every K-12 student receives a voucher of equivalent value. Usually, the value of the voucher is set significantly below the current per-student costs of government education (often at around half of that value). Conceivably, though, vouchers could be issued only to students of families below a certain income level. Families may supplement the voucher with personal funds for more expensive schools.
The problems with vouchers are two-fold. First, they make even more people dependent on the government for education. Currently, around 10% to 15% of the US population does not rely on government at all for K-12 education. Vouchers would tend to make practically everyone dependent on the government for education. Dependency in turn creates two problems: it reduces a person's level of responsibility, and it creates more and larger special-interest groups to vie for control of government resources.
The second main problem with vouchers is that they invite more government regulations of education. True, proponents of vouchers rail against government intrusion, and they typically even write explicit language into the legislation to prevent increased government controls. However, government regulations always follow government dollars, and no amount of semantic cunning will prevent it. (He who pays the piper calls the tune.) As Charles MacKenzie noted in one of his SepCon sessions, the US Congress once promised, in law, that they would not become involved with regulating education. Why the supporters of vouchers trust politicians to make good on any of their promises is beyond me, given politicians' history of upholding, say, the Constitution.
Vouchers have come under increasing criticism from a wide range of libertarians. Jacob "Bumper" Hornberger of the Future of Freedom Foundation, Lew Rockwell of the Ludwig von Mises Institute, Douglas Dewey of the Children's Scholarship Fund, and others have joined in the libertarian critique of the voucher proposals.
Largely in response to the libertarian criticism, the voucher advocates modified their proposals into "tax credit" initiatives. Under these new proposals, tax credits would be issued to families with children in private schools or homeschools. Family tax credits are more versatile in that they can easily be offered to select students -- for instance, the Colorado initiative would have given tax credits first to students from the worst government schools. Because tax credits are given retroactively and selectively, they are also more flexible for the government's budget.
Some proponents of family tax credits claim the credits do not create more dependency on government, but only reduce a family's tax burden. Steve Schuck, President of Coloradans for School Choice and the major backer of the 1998 tax credit initiative, suffers no such illusions. As literature from Schuck's organization states, "If eligible taxpayers owe less in Colorado taxes than the amount of the credit, they receive a check from the state to cover the balance of the tax refund." Of course, on the flip side of the coin, families who pay higher taxes will not be fully reimbursed, and the broader population without school-age children must of course continue to pay the full burden.
Schuck, however, erroneously imagines that family tax credits can subsidize private schools without increasing the level of state regulation. The thinking is, because the tax subsidies would go indirectly to the schools through the families, the legislature wouldn't directly regulate the schools. This is wishful thinking. Everyone will realize that the schools are indeed receiving a tax subsidy.
But the text of the proposed tax credit law even states, "[N]either the state nor any subdivision thereof shall use this section to increase its regulatory role over the education of children in non-public schools beyond that exercised on January 1, 1998." Of course, this text would not prevent the legislature from increasing regulatory burdens because of the tax subsidies, without technically using this section of the law for the purpose. In other words, the text of the proposal is a dream come true for lawyers and politicians.
Family tax credits, then, do not solve the problems of government dependency and government regulation. What about donor tax credits, which offer tax credits only to those who contribute to scholarship foundations? Angell's proposal is, I must admit, the most clever and least objectionable of the education tax subsidy proposals. Significantly, Angell's plan does not permit a credit greater than an individual's tax burden. It also limits the amount of the tax credit. In the Colorado version the credit cannot exceed $500 of one's state income tax.
Fritz offered some devastating arguments against the donor tax credit in his debate with Angell. As Fritz showed, the donor tax credit still perpetuates both dependency on government and the danger of more regulations.
Angell does not believe that donor tax credits will create more dependency. Angell calls his proposal a system of "private, voluntary funding." However, this characterization is deceptive, as Fritz pointed out. The plan still relies on government to redistribute income by force. Fritz drew the analogy of a mugger who gave his loot to a good cause: would the mugging thereby be justified? This is the situation the Angell plan would create. The state would in effect be demanding: "Give me your money, or give it to the scholarship fund." There is nothing "voluntary" about it. And, of course, the plan makes the recipients of the money dependent upon government force.
Angell is also overlooking the obvious danger that the government will simply raise taxes to compensate for the revenue lost to the scholarship funds. Colorado has some restraints on increasing taxes, but these restraints can be over-ridden fairly easily, and other states have much weaker restraints.
Angell fired back at Fritz that Fritz's organization benefits from "tax-exempt status" as a non-profit. However, as Fritz noted, donations to a non-profit are not credited by the government; they are merely counted as write-offs which reduce an individual's tax burden by only a small fraction of the donation to the non-profit. Non-profits, while not necessarily a good idea, do not for the most part depend on the forcible redistribution of wealth.
Fritz presented a clear, simple analogy relevant to the entire libertarian critique of the state. Sex, noted Fritz, is inherently a beautiful thing (he referred to it as the "marriage act" so as not to offend the more sensitive ears). However, forced sex, though it might look the same and have the same physical results, is obviously not the same act as voluntary sex. "Rape," forced sex, is a perversion of sex and an atrocity, and it is anything but a "blessing" to either party, as Fritz put it, simply because it is forced. Similarly, charity is inherently a beautiful act. Forced charity is something altogether different.
All the advocates of education tax subsidies at SepCon exhorted "us" to "do something" about the deteriorated condition of American education. Fritz's plan, to draw people into market education one family at a time, is seen as too distant, too difficult. If only we could hurry up the process by political means! Unfortunately, the attitude that we can fix everything with government is what got us into our present messes. As Fritz pointed out, if our goal is a market system of education in which no family is dependent on the government, making more people dependent on government via education tax subsidies is hardly a step in the right direction.