Acton Commentary

Letting Business Help: The Promise of Education Tax Credits


With recent election results splitting control of the national government, legislators must now confront the challenge of crafting bipartisan initiatives. There is a prime opportunity for enlisting such broad support, which has not yet been fully developed: educational choice.

Most of the action in this field occurs at the state rather than the federal level, but the principle is the same. Legislation in favor of educational choice appeals to broad swaths of Democrats, Republicans, racial and ethnic minorities, and the middle class. It is popular because it cultivates rather than frustrates parental responsibility in the formation of children.

Over the last decade or so, battles over vouchers in Milwaukee, Cleveland, and Florida have gotten most of the attention, but there are other — possibly even more promising --programs that have quietly yet effectively changed the character of education funding.

One key initiative is the corporate tax incentive. Pennsylvania's Educational Improvement Tax Credit (EITC) is a leading example, and similar programs have been adopted in Florida, Arizona, and Rhode Island. This lineup of states demonstrates the potential for political success across a wide spectrum of partisan affiliation. Using the color coding that has become conventional, Florida and Arizona lean red, Rhode Island is solidly blue, and Pennsylvania is decidedly purple. All now have mechanisms in place to empower poor and middle class parents to send their children to schools that they believe will best serve their educational goals.

In Pennsylvania, the EITC enables businesses to contribute up to $200,000 to a scholarship organization (SO) or an educational improvement organization (EIO). For a one-time gift, the business receives 75 percent of its contribution back as a tax credit; for a two-year commitment, the company gets 90 percent. An EIO uses its funds to furnish improvements in public schools, such as technology enhancements. An SO provides scholarships to eligible students (family of four income of $70,000 or less) who wish to attend private schools.

As with voucher programs, such tax incentives obviously assist needy children by increasing their options. But programs such as EITC also enjoy at least two advantages over vouchers. First, the funding channel from corporations to mediating bodies (SO or EIO) to schools mitigates the danger of increasing government involvement in religious and other private schools. (It also diminishes the opposition of hard-line church-state separationists).

Second, instead of relying primarily on government as the source of funding, such programs actually encourage the functioning of civil society. In the case of an SO, for example, a partnership is formed among private organizations for the purpose of expanding access to quality schooling.

Granted, government provides an incentive through the tax break, but there is an important difference between, on the one hand, collecting tax revenue and then distributing it, and, on the other hand, permitting private institutions to retain more of their income on the condition that they contribute toward a public good. The latter comports better with a vision of government as promoting the meeting of society's needs, rather than as provider of such goods.

These programs have an impact. Dr. Ronald Bowes, Assistant Superintendent for Public Policy and Development in the Diocese of Pittsburgh, observes that the results for enrollment in Pittsburgh's Catholic high schools have been “somewhat dramatic.” The 2006-2007 school year saw an increase of 3.4 percent, bucking long-term trends. The relative health of Pittsburgh Catholic schools is directly related to the EITC, he says: “Many parents have written that they would not be able to send their children to Catholic schools if it were not for the SOS fund.”

Yet what makes the EITC program widely popular is that it is not geared specifically to benefit private schools. It supplies aid to whichever educational programs and institutions parents and firms are willing to support. Across Pennsylvania, over the five-year life of the program, 1,900 companies have given in excess of $100 million to improve educational opportunities in Catholic, public, and other schools.

Legislators looking for a “winning issue” would do well to pay attention. Here is a way they can do some genuine good for their constituents--and reap political benefit without earmarking pork for indoor rain forests or superfluous bridges.