These remarks were delivered to members of the National Conference of State Legislatures at its annual meeting in Salt Lake City on July 20, 2004.

It’s late afternoon at the last session of a full day at the conference. Thankfully we have an exciting topic to keep us awake and energized! It’s nothing like 20 years ago. Back then, legislators at an education policy meeting like this would have quite a different agenda.

Twenty years ago, the education world was abuzz with that 1983 report, "A Nation at Risk." Our agenda probably would have addressed the ideas contained in that report: curriculum, academic standards, time spent learning, teacher training, and funding.

If a certain Senator Rip Van Winkle had somehow dozed off during his late afternoon session 20 years ago, and if the Honorable Senator Van Winkle had stayed in his slumber until just now – he’s not term limited, by the way – I think he would be startled by today’s agenda.

The Debate Has Shifted

Our panel’s question, comparing vouchers and tuition tax credits, wasn’t even on his policy radar screen in 1984. "A Nation at Risk" did not even discuss school choice. Senator Van Winkle would find he can’t even talk about education today without talking about school choice.

And more tellingly, school choice is such a permanent fixture of the landscape that legislators convene large meetings like this one to compare different kinds of school choice plans.

This is significant. People in a world without cars don’t compare Fords vs. Chevys. People in a world without school choice don’t compare vouchers and tax credits.

None of us are naïve enough to think that the very idea of school choice won’t still be debated. People still debate the car. But it is less and less politically acceptable to oppose all forms of choice.

Only four states may have tuition tax credits, and only seven jurisdictions may have vouchers, but most states have at least liberalized choice within their public school systems in recent years.

The simple promise of access to high quality education for everyone remains elusive after more than 150 years of traditional public education.

But neither have school choice programs achieved that goal. They are too new, too limited, and some of them are too flawed.

One danger of critiquing any school choice program is forgetting what we’re really comparing it to. To say that a particular voucher or tax credit is flawed does not mean it is worse than the public school assignment system we have now.

For the most part, government still assigns the vast majority of children to attend particular schools based on their neighborhood, and their parents who choose an alternative must still pay twice for education.

Comparing Choice Programs

Last April, the Mackinac Center for Public Policy published a study by one of our senior fellows, Andrew Coulson. His study compared domestic and international voucher and tax credit programs. He was invited to speak here today but could not attend.

NCSL asked this panel to especially make three comparisons between vouchers and tax credits: their ability to overcome legal challenges, promote fiscal soundness, and provide educational accountability.

Relying heavily on Andrew Coulson’s work, I will explain how we found vouchers and tax credits to stack up against each other on those three points.

Our study started with a policy goal and some definitions.

1) The policy goal was a program that served the diverse educational needs of all families, not selective subsets of the population, while preserving social cohesion and assuring academic quality.

2) We wanted to compare apples to apples based on the only data we have from an apples-and-oranges world. That meant we had to devise "ideal" voucher and "ideal" tax credit programs, and then compare them, based on what we have learned from less-than-ideal school choice programs operating in the real world.

3) Our ideal voucher and tax credit are "universal," which means they would not be targeted at a small group distinguished by geography, income, race, age, or anything else. These ideal vouchers would be available to everyone in a state. And in the case of the ideal tax credit, we also broadened it by designing it for maximum participation.

We call this new, broader tax credit the "universal education tax credit," and it works like this:

The credit can be claimed by any taxpayer – individual or business – to support the education of any child – at any tuition-charging private or public school, or through a private scholarship organization – and applied against a broad range of taxes including income, property, and business.

So, with the goal in front of us and the definitions in mind, let’s compare.

Legal Comparisons

The first comparisons are legal ones. Which program has the advantage on legal issues, the universal voucher or the universal education tax credit?

The first legal hurdle any choice program has to clear is enactment. A direct vote of the people has never enacted a school choice program. A Michigan voucher holds the all-time record at 45%, but that was way back in 1972. In the last 30 years, the top vote-getter, at 41%, was a Colorado tax credit in 1998. Neither program was universal.

But tax credits seem to do better than vouchers in public opinion surveys. A poll last October in ten states confirmed majority support for vouchers and tax credits, with significant preferences for tax credits over vouchers, and even stronger preferences for universal programs of any kind compared to their targeted counterparts.

The margin of preference for universal programs vs. targeted ones was an astounding 53 points in Michigan.

Teacher unions seem to understand that the public finds vouchers less appealing than tax credits. Whenever tax credits are proposed, the opposition labels them "vouchers."

The vast majority of programs that make it to the ballot are targeted programs, not universal. The data are far from clear, but I would cautiously suggest that universal education tax credits have a slight advantage over universal vouchers at the polls.

Of course, vouchers and tax credits alike have been enacted by legislatures in many states. Interestingly, vouchers were proposed in the late 1990s in Pennsylvania, Minnesota, and Arizona, but they failed to gain enough support. Those three states subsequently enacted tax credit programs.

When vouchers do become law, the political price is often paid in the form of more burdensome restrictions placed on the vouchers than on comparable tax credit programs.

This is probably because of an intuitive difference between vouchers and tax credits. With a voucher, government essentially sends checks to eligible recipients. Everyone understands this is clearly government spending.

But with a tax credit, the government merely allows people to keep more of their own money. This is not clearly government spending.

Why is this difference important? Someone once said, "Government shackles follow government shekels." Since vouchers involve government money, it is no legal stretch to argue for government restrictions on the direct beneficiaries of that money. Restrictions can include school policies, fees, curriculum content, testing, graduation rates, and even building designs.

It is much more of a stretch to argue that your money the government lets you keep by means of a tax credit should be so regulated.

The Arizona Supreme Court specifically ruled in 1999 that education tax credits were not government spending and therefore did not violate that state’s prohibition of public support of religious schools.

Although the U. S. Supreme Court recently permitted a challenge related to that decision, scholars across the spectrum, including my co-panelist Dr. Belfield, agree that tax credits are less likely than vouchers to face legal barriers linked to government funds.

Even though the U. S. Supreme Court’s Zelman decision in 2002 confirmed that vouchers involving religious schools do not necessarily violate the Establishment Clause, its Davey decision last February suggested that state constitutions could limit certain vouchers in some circumstances.

I believe well designed universal vouchers and education tax credits ultimately will be found unequivocally constitutional.

Until then, one thing is certain: If you pass it, they will sue. Universal education tax credits seem better able to withstand the inevitable legal challenges than universal vouchers.

Fiscal Comparisons

The second major area of comparison is fiscal. How do vouchers and tax credits affect state finances? And what about fiscal accountability?

Both universal vouchers and education tax credits can be designed to save a state billions of dollars, not cost it. This is done by limiting the amount of the voucher, or credit, to less than the state’s public-school, per-pupil spending.

The happy fact is that most private schools charge less than half of what the states currently spend on each public school student.

If a state caps the voucher or credit at 50% of its current per-pupil spending, say $6,000, then every child who migrates from the government system to the private one saves the state $3,000 on average.

When 100,000 kids migrate, that’s $300 million in school savings lawmakers could even use to raise per-pupil spending.

The key to saving money is phasing in the credit over a few years so the existing private school students don’t swamp the system immediately for a net cost to the state. Savings from migration eventually more than offsets the cost of providing the vouchers or credits to current private school students. We’ve modeled such programs at the Mackinac Center.

Even though both vouchers and credits can be designed to generate large budget savings, universal education credits still have a fiscal advantage. By making the tax credits non-refundable, the state avoids the somewhat absurd and very costly practice of granting someone a so-called "tax credit" that exceeds the taxes they actually pay. There is no analogous constraint for vouchers. Tax credit net costs can be self-limiting in this sense compared to vouchers.

Let’s talk about fiscal accountability. As we discussed, voucher programs might justify the imposition of all sorts of so-called accountability measures more than tax credits would, but the bigger question is why would we want to?

We should first admit to two uncomfortable facts. First, the specter of potential vast fraud that is raised by opponents of vouchers and tax credits is a red herring, and I’ll show you why. Second, the state itself has a questionable record in assuring fiscal accountability in the existing public school system after 150 years of reforms.

Why is the fraud issue a red herring? It’s not because school choice somehow magically prevents fraud. Public schools don’t do that either.

It’s a red herring because choice opponents are obviously applying a much higher standard to vouchers and tax credits than they do to all the other popular education subsidy and tax credit programs that already exist.

The parents of millions of pre-school and college students already benefit from numerous state and federal tax credit and scholarship programs. Somehow though, this vast potential for fraud that includes everything from Mom-and-Pop preschools to sectarian institutions of higher learning has not translated into any loss in public confidence in those programs.

Many people in this room undoubtedly take grateful advantage of things like pre-school tax deductions, college tuition tax credits, and Pell grants.

No one has yet explained why thieves will be drawn to K-12 programs in greater numbers than they are among those who run preschool and college aid programs.

What about the state as the guarantor of fiscal accountability? The only thing stunning about the seemingly endless stories of public school fraud is that those stories don’t stun us anymore. If taxpayers could choose how to assure fiscal accountability in their schools, more of them would probably opt for good old-fashioned audits from accounting firms like Deloitte Touche instead of state oversight. Would you give your money to a charity that did not audit its books?

Still, tuition tax credits may have a slight edge over vouchers regarding financial fraud, and that’s because of incentives.

In programs where there is no tuition co-pay, and the voucher or tax credit pays for 100% of tuition, all the voucher parents will be exercising their choices with a third-party payer picking up the tab. But the same is true for only some of the tax credit parents – the ones who receive private scholarships.

The rest of the tax credit parents – maybe most parents – will be spending their own money for their own children, or at least children they know. We could expect such tax credit parents, ceteris paribus, to have a little greater incentive to demand fiscal accountability.

The tax credit parent may be more diligent in ferreting out institutions with any hint of financial impropriety.

And tax credit users who donate to scholarship organizations get to pick the ones they will support and which ones they won’t. The tax credit parent, or tax credit donor, bears the full brunt of any fraud and doesn’t want to be ripped off.

Private scholarship organizations tainted by fraud in Florida and elsewhere risk being shut down. When they are forced to close their doors, that’s evidence that the system is working.

I’m not aware of any public schools that have been shut down as a result of fraud, other than some charter schools, interestingly enough.

Educational Comparisons

The last area of comparison is educational accountability. The strongest accountability occurs not when the state sets standards, but when parents have access to lots of competing options for their educational choices and dollars. This is the opposite of our existing public school assignment system.

Both universal vouchers and education tax credits promise to score highly in this regard.

But again, tax credits have a slight edge over vouchers. The reasons are the same as for fiscal accountability – the tax credit parents, or donors, are spending their own money and/or choosing the organizations they will support. They have a little more incentive to insist on good educational performance.

The international data show strong correlation between academic accountability and direct payment by parents who have no barriers to their departure.

But even if tax credits have a slight edge here, the big difference in educational accountability is not between vouchers and credits. The big difference is between the existing government assignment system and any universal school choice program.

We just compared universal vouchers and education tax credits regarding legal issues, fiscal soundness, and academic accountability. Universal education tax credits have large or small advantages in all three categories.

This by no means suggests that we should abandon vouchers and push exclusively for tax credits. In some locales, the legal and political climate will favor vouchers. Leaders in those states should enact whatever choice program they can to help all parents access the safest and best schools for their children. We should not wait for some perfect day to enact some perfect school choice program.

I have drawn heavily today from Andrew Coulson’s Mackinac Center study, "Forging Consensus," which evaluates vouchers vs. credits on 17 criteria. It examines domestic and international choice programs and includes one-page summaries of every U. S. voucher and tax-credit plan except the newest one in D.C. There are copies for everyone here.

Debating the forms of school choice, and not just choice itself, is a sign the school choice movement is maturing. That’s encouraging. It means we are that much closer to the day we can say those original promises of access to quality education for everyone in a free society are finally being fulfilled.

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Joseph Lehman is executive vice president of the Mackinac Center for Public Policy, a Michigan-based nonprofit, nonpartisan research and educational institute. Reprint permission is hereby granted provided the author and the Mackinac Center are cited.