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Why are Educational Tax Credits Important?

By Christopher Klicka
Printed in Practical Homeschooling #61, 2004.

Educational tax credits and their implications for homeschoolers.
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Chris Klicka


Many homeschool 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. One answer to this problem is in the use of educational tax credits.

Are Education Tax Credits Government Funds?

Government vouchers and home-based charter schools have often been touted as an answer to this double-taxation problem. The 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.

A charter school allows a parent to continue to teach their child at home with resources paid for by the school. On the surface, these ideas are commendable, but the myriad strings attached to any government money would limit the freedoms of private and homeschools.

Educational tax credits are very much different from vouchers and charter schools. Enrolling in a charter school turns your homeschool students into public school students. As public school students, controls are complete and expected.

Receiving an educational voucher is receiving government money. Accountability strings are expected. An exchange of money for freedom takes place.

Not only do these strings require you to report on uses for the money, but also often restrict its use. For example, parents cannot use money received from a charter school to buy religious textbooks.

As an alternative, I would recommend the vehicle of 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.

Courts have recognized the difference between vouchers and tax credits, holding that tax credits can be used for funding religious curriculum. 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.

A similar case in Arizona led to a similar conclusion by the court:

"According to Black's Law Dictionary, "public money" is "[r]evenue received from federal, state, and local governments from taxes, fees, fines, etc." Black's Law Dictionary 1005 (6th ed.1990). As respondents note, however, no money ever enters the state's control as a result of this tax credit. Nothing is deposited in the state treasury or other accounts under the management or possession of governmental agencies or public officials. Thus, under any common understanding of the words, we are not here dealing with "public money"... Kotterman v. Killian 193 Ariz. 273, *276-277, 972 P.2d 606,**609-610 (Ariz.,1999).

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 has passed a tax credit in the second category.

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.

Furthermore, 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.

Can Tax Credits Lead to More Regulation of Homeschoolers?

Can the legislature still try to regulate tax credits? You bet. Can legislatures still try to regulate private homeschooling? Yes. Unlike vouchers and virtual charter schools, however, the proponents of regulation have no legitimate excuse to regulate tax credits and private homeschooling. We are not taking government money.

If enacted, tax credits, like homeschool or private school laws, must be watched and protected from attempts to regulate. Eternal vigilance is required. In both MN and IL attempts have been made to add restrictions on homeschools using ax credits. Those attempts were quickly defeated in committee by an aggressive response by homeschoolers.

Although the courts have agreed that tax credits can be used for religious purposes, a legislature could proactively limit a credit to secular material. This is one danger that must be watched for when a tax credit bill is making its way through a state legislature.

Have Education Tax Credits Been Successful?

Educational tax credits have been very successful in the three states that have enacted them. The states are:

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

  • Minnesota. The tax deduction has been in place 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 bill also applies to homeschool students.

  • Illinois. Law allows its residents to claim $500 per child for education expenses. This tax credit applies to homeschool students, since they have the same legal status as private school students.

Besides the cases mentioned above, educational tax credits have also been very successful when examined in 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.

The U.S. Supreme Court requires government action which benefits religious organizations to satisfy a three-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.

Utilizing a tax credit is keeping your own money in the first place. It is not government money and your students are not public school students. Accountability controls are not expected because it is your money. An educational tax credit is simply the legislature recognizing that it is your money, and letting you keep it.

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