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J. Michael Smith, President — Michael P. Farris, Chairman
February 27, 2009

Why Are Educational Tax Credits Important?

Many homeschool and private school parents understandably feel they are being double-taxed. They demonstrate personal responsibility by providing for their own children’s education, yet they are required also to provide for the education of their next-door neighbor’s children.

Some conservative leaders have offered government vouchers as a solution to this problem. These vouchers would come in the form of a check from the government, which parents could use to send their children to the school of their choice or pay for their homeschooling expenses. On the surface, this idea is commendable, but the myriad strings attached to any government money would limit the freedoms of private and homeschools. The Home School Legal Defense Association, as a result, has adopted a position of opposing government vouchers.

As an alternative, HSLDA recommends another vehicle: educational tax credits. Parents and individuals who provide for a child’s education should be allowed to keep some of their tax money that would otherwise have been used to fund public education. This goal could be accomplished through a tax credit.

Educational tax credit legislation can typically be divided into two categories: tax credits for individuals or corporations who contribute to a non-profit scholarship fund and tax credits reimbursing parents for educational expenses incurred for their children. Arizona passed an educational tax credit law which falls into the first category while Minnesota passed a tax credit falling into the second category.

Beware of legislation that may seem like an educational tax credit, but is really a “refundable tax credit”. A regular educational tax credit reduces your total tax burden on a dollar for dollar basis, whereas refundable tax credits apply even if you don't have a tax bill. Refundable tax credits are vouchers in disguise. HSLDA has drafted model educational tax credit legislation that should be closely adhered to so that there is no confusion on whether it is a tax credit or a government voucher.

In drafting the Model Educational tax credit bill, HSLDA blended these two innovative approaches into one bill, making a hybrid of the Arizona and Minnesota laws. The Model Educational tax credit bill gives tax credits both for parents who provide their own children’s educational expenses, as well as for individuals who make contributions to nonprofit organizations dedicated to providing school tuition grants. The limit for contributions made to organizations is $200, but the limit for parents is either $2,500 or half of the state’s average per-pupil cost, whichever is greater.

I. Benefits of Educational Tax Credits

Educational Tax Credits Will Give Parents True Choice in Education

  • With the money parents will be able to save, they will have greater freedom in choosing how and where their children are educated.

  • This tax credit will help reduce the “double tax burden” on parents who choose private or home education. Presently these parents must pay for both their own children’s education and public school education.

Educational Tax Credits Will Benefit Public Schools

  • By encouraging students to attend private schools or homeschools, the tuition tax credit will reduce overcrowded public school class sizes and the student-to-teacher ratio, making more teachers available to public school students.

  • The reduction in class sizes will be especially helpful to fast-growing communities that are experiencing overcrowding in their schools. These communities would be able to slow the growth of their enrollment rate.

Educational Tax Credits Will Benefit Low-Income Families

  • Most educational tax credit proposals provide a credit for businesses and private individuals who contribute to a nonprofit scholarship fund, which are usually dedicated to helping low-income families. This type of credit provides an incentive to help give low-income families true choice in their children’s education.

II. Other Evidence Supporting Educational Tax Credits

Educational Tax Credits Have Been Successful in Other States

  • Arizona taxpayers may claim a tax credit (up to $500) equal to the amount they contribute to any nonprofit organization which allocates 90% of its funds for school tuition grants. This law is designed to benefit low-income families.

  • Minnesota has had a tax deduction for 15 years. This idea has been so successful that in 1997, the state expanded the deduction to a $1000 per child tax credit. The credit also applies to low-income homeschool families.

  • Illinois allows its residents to claim a tax credit of up to $500 in excess of expenses of $250 for tuition, book fees, and lab fees $500 per child for education expenses. This tax credit applies to homeschool students, since they have the same legal status as private school students.

Parents Want Educational Tax Credits

  • On January 19, 1999, for example, Conquest Communications & Data, L.L.C. conducted a poll of 400 Virginia voters. The poll showed that 54.5% supported a bill that would give a tax break to parents who want to send their children to the public, private, church-run, or homeschool setting of their choice. Nearly 68% agreed that school choice in Virginia will raise academic standards, allowing more children to receive a quality education, and 59.3% of those surveyed would support legislation offering scholarships to low-income families and giving tax credit to those who help send low-income children to the school of their parents’ choice.

  • McLaughlin and Associates recently conducted a poll of 1,000 people nationwide on the issue of educational tax credits. Two-thirds of the voters agreed that the credits give parents more opportunity to choose which school their children attend. Seven of ten voters approved of providing parents with a $2,000 per child education tax credit to be used for computers, books, tutoring, or any other educational expense, including tuition.1

III. Educational Tax Credits Are Constitutional

Educational Tax Deductions Have Been Upheld by the U.S. Supreme Court

In Mueller v. Allen, 463 U.S. 388 (1983), a Minnesota educational tax deduction initiative, which is similar in nature to an educational tax credit, was upheld by the U.S. Supreme Court. The Court found that even though private and religious schools indirectly benefited the most, it did not violate the Establishment Clause.

Educational Tax Credits Satisfy the U.S. Supreme Court’s 3-pronged Test

The U.S. Supreme Court requires government action which benefits religious organizations to satisfy a 3-prong test established in Lemon v. Kurtzman, 403 U.S. 602 (1971). In Kotterman v. Killian, 972 P.2d 606, 288 Ariz. Adv. Rep. 5 (1999), the Arizona Supreme Court recently held that educational tax credits satisfy all three prongs of the Lemon test:

(1) Educational tax credits have a secular purpose to provide all parents a tax credit for their children’s educational expenses, regardless of the form of education: public, private, or religious;

(2) Educational tax credits have a primary effect of neither advancing nor inhibiting religion.

(3) Educational tax credits avoid excessive government entanglement with religion.

Educational Tax Credits Upheld Under State Constitution

In 2001, an Illinois appeals court held that Illinois’ educational tax credit law was valid under the Illinois Constitution. Griffith v. Bower, 319 Ill. App. 3d 993 (2001). The law was challenged as unconstitutional because plaintiffs contended that it allowed tax revenues to be expended in support of religious education. The court upheld the law as constitutional, stating that “The credit at issue here does not involve any appropriation…of public funds….Rather, the Act allows Illinois parents to keep more of their own money to spend on the education of their children.” Ibid.

IV. Attached Resources

  • A Model Education Tax Credit Bill, which provides language legislators can use to introduce tax credit bills in their state. The Arizona and Illinois education tax credit statutes are also included.

  • New York Assembly Bill 5253 and Senate Bill 3355, which also provides a model for an education tax credit bill.

  • The opinion by an Illinois appellate court upholding an educational tax credit law as constitutional.

Prepared by the legal staff of the Home School Legal Defense Association. Permission to reprint granted.

1 McLaughlin & Associates. “Education Tax Credits Favored as Empowering for Parents.” (June 13, 2001)