Page Title

Tuition Tax Credits

Page Content

Tuition Tax Credits: A Tax Subsidy for Private Schools

The Universal Tuition Tax Credit (UTTC) would allow individuals and corporations a tax credit for all or part of the tuition they pay for students attending private schools. Proponents claim this will relieve pressure on public schools by providing an incentive to send students to private schools.

The Select Few

Tuition tax credits only benefit students who are fortunate enough to be accepted by a private school and who are able to afford the remainder of the tuition. Unlike public schools, private schools can be very selective, excluding students with special needs or low academic performance. Additionally, private schools do not provide the same services many students depend on in the public schools, like transportation to and from school, and free textbooks and supplies.

Public Schools

Utah public schools serve the entire community. America’s public education system provides the foundation upon which our democratic nation thrives. Taxpayers without children support public schools, and so should parents with children in private schools. Even if some students leave the public schools for private schools, most fixed costs will remain. This means that if tax dollars are cut to benefit a select few, the rest of us will be forced to cover the remaining costs.

Private Schools

Private and religious schools are great options for some students and parents. However, it is not fair to promote and subsidize private and religious instruction with public dollars. In this era of increased school accountability, it is also counter-productive to fund a system that is not held to any public accountability standards. While many states have large private school sectors without government subsidies, Utahns have overwhelmingly chosen public schools for their children. In fact, in over half of Utah’s 40 school districts, not one parent has chosen to send a student to private school.

Conclusion

Over 97 percent of Utah students attend public schools. Instead of diverting scarce education dollars to programs for a select few, we should focus our efforts on providing our public schools with the resources they need to reduce class sizes and implement some of the recommendations found in recent state and federal legislation. Utah’s public schools achieve remarkable success with less than remarkable funding. Imagine what they could do adequate funding. Good public schools with caring teachers and high standards will create learning opportunities that leave no child behind.

Additional Tuition Tax Credit Information

Utah Cost Savings Myth

TTC proponents base the cost savings argument entirely on the following assumption: If the amount of the credit is less than the education costs associated with each student then the system saves money by exporting education costs to the private school. That simple equation may be true – but only if certain circumstances are incorporated into the analysis:

  • Before any savings are realized the fixed costs associated with the tuition tax credit need to be covered. 
  • Tuition tax credits need to increase private school enrollment sufficient to produce the intended savings.

Fixed Costs

For purposes of this analysis the term “fixed costs” involves two components. The first area involves those costs associated with paying the credit to people who are already attending private schools. Any credit payment for students already attending private schools or for students who would attend private schools regardless of the credit is a direct expenditure with no associated savings. (In fact, some more cynical observers would argue that payment for existing attendees is actually the primary motivation for the tuition credit.)

It is estimated that approximately 3% of the nearly 500,000 school age students currently attend private schools. That estimate means that 15,000 students would be eligible for the credit. A credit amount of $2000/student means that there is a fixed cost of $30 million dollars (15,000 X 2,000). In other words, before any savings occurs there is an immediate outlay of $30 million. System-wide savings occurs only when this $30 million is covered.

One critical point must be addressed: Some advocates have indicated a desire to apply the credit initially only to kindergarten and/or first grade. The credit would then continue for those students as they progress within the school system and a new group of 1st graders would be added each year. Advocates of this position appear to advance the premise that such an approach eliminates payments for existing private school students.

This approach does not eliminate the fixed $30 million cost. All it does is spread the cost over a period of time. Eventually the full cost of payments for existing private school students must be covered. Any other position operates on the assumption that there would be no students entering private schools except those induced by the tax credit - a position that is obviously false.

The second fixed cost component concerns those operational costs that exist regardless of the number of public school students. It is difficult to ascertain with any precision what those costs would be. Determining that amount is somewhat problematic although conceptually valid. For example: A reduction of a single student from a school of 500 will not meaningfully reduce any school operational costs. There would not be a reduction of faculty, administration, etc. due to a single student leaving the school.

However, it must also be stated that direct state funding for education via the uniform school fund is done on a per student basis. Local school funding provides financial support for physical facilities. In short, there would be legitimate savings (after covering the initial $30 million outlay) with individual enrollment decrease. It may not be the entire amount stated by credit supporters

Savings Potential

Proponents of credits have used a variety of numbers for the education costs for public school students. However, the most commonly used figure is approximately $4000. That amount appears to correlate to basic O&M costs on a per student basis.

The question is how many additional private school students would be required to cover the tuition credits fixed costs. Simple arithmetic would indicate that an additional 15,000 students now in public school would need to leave for private schools before the fixed costs are covered. In other words, current private school enrollment would need to double before any savings are realized. (Note: This is a static number and does not incorporate any natural private school enrollment growth.)

Taxes and Product Demand

The use of state taxes as a means of creating or enhancing demand for products/services is less than stellar in actual performance. Federal taxes may have an impact in some instances, but as instruments of social policy state taxes have a very limited track record.

In the case of tuition credits the question is what type of demand for private school services exist within Utah? If there were huge pent-up demand that would be immediately impacted by a partial subsidy of tuition costs, then significant enrollment increases may be possible. However, there is no empirical evidence to support that premise, and in fact, many believe that the current private school providers would simply increase tuition to take advantage of a new imbalance between supply and demand.

Rather, a more logical conclusion is that parents who deem private schools important have likely already made the necessary sacrifices, financial and otherwise, to enroll their children in private schools. For individuals who are not already committed to private schools, it is unlikely that a partial tuition subsidy would in and of itself induce behavioral changes. The decision to attend private schools also involves other factors such as peer groups, the geographic location of the private school, transportation costs and other lifestyle issues.

Some Facts and Figures

  • According to the Sutherland Institute, the cost of tuition and books for Wasatch Front private secondary schools (1997-98) ranges from $4,350 to $11,300 per year. If the tax credit were $1500, the average taxpayer would have to earn over $45,000 per year just to qualify for one full credit. This means the UTTC is designed to help those who need help the least.
  • It would cost the state $19 million to fund a tuition tax credit just for the current number of students enrolled in private schools in Utah. Experts say that in 10 years, tuition tax credits could cost Utahns an additional $29 million a year in lost revenue to public schools. Although schools are receiving more money from the state than they were 10 years ago, the percentage of the total state budget going to education has decreased dramatically.
  • Ten years ago, the ratio of school-age dependents to adults was 48 to 100. Today, there are 10 fewer dependents per 100 adults, and the dependency ratio is projected to remain at 38 to 100 for the next 30 years (Governor’s Office of Planning and Budget). This means Utah will have more taxpayers per school age dependent to pay for the projected student enrollment growth.

Conclusion

The Utah debate over private school credits has incorporated one novel twist by focusing on the concept of direct budget savings as a rationale for support. That argument is valid only if there is a significant demand for private schools that will be triggered by the existence of the credit. There is no evidence to support this premise.

One of the difficulties of this debate in Utah has been the lack of any actual legislation. As such, the debate inevitably centers on concepts rather than actual legislative language. When confronted with the revenue loss issue some proponents simply state that the “bill is not written in that fashion”. However, there is simply no constitutionally permissible (equal protection issues) or administratively viable (you have no means of knowing who they are) means of distinguishing between those students who are already in private schools or would attend due to other reasons and those students enticed by the existence of the tax credit. As such, all private school students covered by the legislation are entitled to the credit. Any payment for students already in the private system represents a direct revenue loss. There are no savings until that loss is covered.

Last year’s debate over the tuition tax credit proposal found in Senate Bill 34 ultimately came down to a plea by a legislator supporting the bill to set aside reservations and engage in a “grand experiment”. Utah’s children and their public schools are far too valuable to be subjected to financial experimentations, especially when similar experiments in Arizona and Florida have been unsuccessful.