Scholarship Tax Credit Saves Money, Helps Students

Posted on February 21, 2002 | Type: Press Release
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Phoenix, AZ-With a $1.5 billion debt looming overhead, Arizona's policymakers are rushing to plug the state's leaky coffers.  According to news reports, a handful of legislators have put the state's nationally renowned education scholarship tax credit on the chopping block.  Goldwater Institute executive director Darcy Olsen says that this would be a costly mistake for students and taxpayers.


While applauding efforts to balance the budget, Olsen warns that eliminating the scholarship tax credit would cost tens of millions of dollars and harm students.  "If the scholarship credit is eliminated," Olsen says, "thousands of disadvantaged children may be forced back into already overcrowded classrooms and back on the public dime.  This could take first-rate educational opportunities away from students and increase the tax burden.  Both results are unacceptable."


In 1997, the Arizona legislature created an individual tax credit for contributions to charitable organizations that give students education scholarships redeemable at private-sector elementary and secondary schools.  The state forgoes revenue when taxpayers use the credit, but saves money overall when students use the scholarships to transfer from public to private schools.  Conservative estimates from the Cato Institute show Arizona's scholarship credit has been revenue neutral and should save taxpayers tens of millions of dollars as the program expands.


Arizona's scholarship tax credit currently helps an estimated 19,000 students by facilitating their enrollment in private schools, saving taxpayers money in the process.  That success inspired Governor Jeb Bush (Fla.) and former Governor Tom Ridge (Penn.) to implement similar statewide reforms earlier this year, and President Bush's new budget includes a similar credit.  "Arizona is a national leader on parental choice," Olsen says.  "The state must not regress to the pre-reform policies of the 1980s and '90s, when students were assigned to schools according to zip codes, rather than educational needs."


Critics argue that education tax credits stand in the way of a more desirable flat tax.  Olsen agrees that a flatter, fairer tax system is a worthwhile goal, but believes that education tax credits complement a flat tax system: "Under most flat tax proposals, productive investments by individuals would be tax exempt.  What could be a more productive investment than education?"


Olsen concludes, "Scholarship tax credits should be expanded, not cut."  In a forthcoming study, Olsen finds that giving businesses a chance to redirect some of their tax dollars toward scholarship funds could help more than 22,000 children attend privately run schools at a fiscal savings to taxpayers of $58 million by 2007.



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