Carrie Lips and Jennifer Jacoby, Cato Institute
September 17, 2001
After major voucher initiatives in California and Michigan were strongly defeated at the ballot box last fall, many school-choice advocates looked to education tax credits as a less controversial means to expand education opportunities for children. In this Cato Institute Policy Analysis, Carrie Lips and Jennifer Jacoby analyze the impact of Arizona's $500 education tax credit. Signed into law in 1997, the measure allows taxpayers to receive a dollar-for-dollar tax credit for donations to nonprofit organizations that award scholarships to private elementary and secondary schools. Critics claim the credit amounts to a subsidy of private schools that will drain the public purse. Lips and Jacoby found, however, that although the state initially loses money, the tax credit is at least revenue neutral, since the state also saves money by having fewer pupils to educate in the public schools. (This saving arises when scholarship recipients were not already attending private schools, which is not always the case.) Other critics charge that the tax credit is a perk for rich taxpayers rather than a tool to help children trapped in failing or unsafe schools. The authors found that between 1998 and 2000, Arizona taxpayers contributed about $32 million to 30 scholarship organizations, financing 19,000 scholarships for students who were overwhelmingly low-income. Anyone interested in a serious alternative to vouchers should view the report-which includes tables and charts showing who is using the credits and where their money is going-at http://www.cato.org/pubs/pas/pa-414es.html, or order a copy for $6 from the Cato Institute, 1000 Massachusetts Ave., N.W., Washington, DC, 20001; phone 800-767-1241; fax 202-842-3490.
