Education Tax Credits a Good Idea, but at What Cost?

Marion Herbert's picture
Thursday, July 5, 2012

Do the dollars we spend on vacation really count? Most of us spending money on cheap trinkets and overpriced T-shirts don't believe they do — until we get the credit-card bills. Similarly, it appears state lawmakers believe that the money earmarked for tax-credit programs don't really count, either.

That might explain the ease with which they doubled the amount of tax credits earmarked for corporate contributions to education.

The Educational Improvement Tax Credit program will grow from $75 million to $100 million, and an additional $50 million in credits will fund a new program targeted to students in the lowest-performing public schools. Under the current EITC program, corporations make contributions to organizations that provide scholarships to students or that provide educational programs to schools. Corporations then get tax credits for those contributions.

Proponents of the tax credits say they save public education dollars, because businesses are picking up the tab for students to attend private schools. The Commonwealth Foundation even describes the EITC program as "funded through voluntary contributions from businesses."

We like the idea of corporations stepping up their responsibility to education. But the way these credits are structured, taxpayers actually end up footing the bill for nine out of every 10 dollars spent, sometimes more, according to a recent study by the Pennsylvania Budget and Policy Center.

That's because businesses can recover 75 to 90 percent of the money they donate in outright credits applied to their tax bills. In addition, companies can also take federal and state tax deductions for charitable contributions — which means that a company can make a $300,000 contribution and end up actually spending $20 a year in out-of-pocket costs.

Given that most of these credits are designed to help students pay for private or parochial schools, it's no wonder that critics call this "voucher lite." We would have less of a problem with public money funding private or parochial schools if those schools were held accountable for performance and required to be transparent with how money is spent. But they're not.

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