State's Scholarship Tax Credit Program Should be Expanded

Posted on March 26, 2002 | Type: In the News
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When Marcia Alexander became a young widow, her thoughts turned to her 3-year-old daughter Brenna. "Kyle and I promised each other we'd always put the children first," Marcia recalls, "But I had to go to work full time."

For Marcia, going to work full time was a double cross to bear. Not only was she forced to spend more time away from her daughter, she realized her income would not be enough to provide the first-rate educational opportunities she and Kyle had wanted for Brenna. Fortunately, an unexpected scholarship from the Arizona Scholarship Fund changed everything.

"I really never dreamed that a private school would be available to Brenna; we don't have that kind of money," Marcia told me. Today, however, Brenna is in the firstgrade at the Cathedral Christian Academy in Glendale and reading at the third-grade level. What a difference a scholarship can make!

Brenna's scholarship is made possible by a scholarship tax credit unique to Arizona. This landmark legislation lets individual taxpayers donate money to any of several dozen scholarship organizations and receive a tax credit equal to their donation up to $500. The scholarship organizations pool the donations, then pair the scholarships with needy students. Taxpayers donated more than $17 million to those scholarship charities in 2000, generating nearly 15,000 scholarships.

Legislators should be applauded for securing this credit. But it's a long way to the end of the tunnel. Only a tiny fraction of Arizona's students, approximately 2 percent, benefit from this provision. Thousands more still need assistance.

Results from the National Assessment of Educational Progress show 25 percent of Arizona's students are unable to read by eighth grade and still more struggle with basic arithmetic. Academic skills generally are even weaker among students from lower income families. The U.S. Department of Education has found that students eligible for the free and reduced school lunch program score substantially lower than non-eligible students on its national reading exam.

There is a solution. The Legislature could expand Arizona's successful scholarship credit. The benefits to students are clear. Harvard University evaluations of similar private scholarship programs in Ohio, New York, North Carolina, and Washington, D.C. find that children who enrolled in private schools scored higher on standardized tests than those who stayed in public schools.

Not only do students perform better, parents report greater satisfaction with the academic quality, values, and safety of their new schools. What's more, conservative estimates from the Cato Institute show the scholarship credit has been revenue neutral and should save taxpayers tens of millions of dollars as the program expands.

Arizona's success inspired Governor Jeb Bush (Fla.) and former Governor Tom Ridge (Penn.) to implement similar statewide reforms last year-but with a twist. Under their plans, scholarships are funded through a corporate, rather than personal, income tax credit. Any business that donates funds to a scholarship organization can receive a tax credit against its corporate income tax. Arizona would benefit by following suit and incorporating this additional reform into its current program.

This is a simple yet effective way to improve educational opportunities for students. And it does not create a new cost to business. For instance, if a business owes $5,000 in corporate income taxes and donates $1,000 to a scholarship fund, its tax liability would be reduced to $4,000. Therefore, a scholarship credit would not be a new cost. Instead, it would give businesses a chance to redirect a portion of their regular tax liability to fund scholarships.

Corporate scholarship credits also make fiscal sense. On average, public schools spend almost twice as much per pupil as private schools. In a forthcoming fiscal analysis for the Goldwater Institute, I find that even a modest corporate income tax scholarship credit could generate an estimated 23,000 scholarships at an annual savings to taxpayers of $53 million. This is an opportunity the legislature can't afford to pass up.

Critics contend that sending children to private schools simply side-steps the real need: improving public schools. But experience with scholarship tax credits and other school choice programs overwhelmingly shows that having a choice raises the quality of all schools, whether public, charter, or private. Few parents patronize failing schools given real alternatives.

As more and more families exercise choice, educators will respond by improving their services to attract and retain students. When parents choose schools, schools that can't teach will be shut down and schools where children excel will flourish. And all students, like Brenna, will have the excellent schools they deserve.

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