The Orlando Sentinel published an article over the weekend titled “Education: Big reforms haven’t yet produced big results.” It seems to have been meant as a reality check, and certainly it does contain a few relevant facts, but it also leaves this statement from “critics” unchallenged: “schools won’t get better without more money.”

Slight problem: Florida’s k-12 scholarship tax credit is raising academic achievement at less than half the per pupil cost of the traditional state-run schools. That’s according to academic studies commissioned by the state of Florida and by the state’s own spending and enrollment data.

Figlio and Hart, 2010, found that the scholarship tax credit program improves academic performance in public schools; and Figlio, 2011, found that students using the scholarships to attend independent schools are also benefiting academically. As for cost, the average scholarship is about $4,000. For comparison, the state’s public school districts spent $27 billion in 2009-10 (bottom of page 21, first column), for 2.6 million students, for per pupil spending of just over $10,000.

Ed. Policy Reality Check (Now with More Reality!) is a post from Cato @ Liberty - Cato Institute Blog

I did the above interview recently with ChoiceMedia.tv on the subject of education tax credits and vouchers, in which I argued that credits are a better way of ensuring universal access to the education marketplace. Credits can either directly reduce the taxes owed by families who pay for their own children’s education (as in Illinois and Iowa), or they can offset donations taxpayers make to non-profit k-12 scholarship programs that provide tuition assistance to the poor (as in Pennsylvania, Arizona, Florida, and several other states).

The interview elicited an important question from a commenter: If financial assistance for the poor comes from scholarship programs, isn’t there a risk that those programs will impose restrictions on how the scholarships can be used, thereby curtailing poor families’ educational options?

Minimizing that problem is actually one of the many reasons to prefer education tax credits over vouchers. Any time someone other than the parents is footing the bill for a child’s education, there is the risk that this third party is going to limit parents’ choices. The worst case, historically, has been when that third party is the government. When governments pay for schooling, there is a single set of regulations on what choices parents can make, and there is no way to avoid those regulations short of rejecting the financial assistance altogether—which the poorest families have difficulty doing. Vouchers bring with them this single set of government rules (and it is often an extensive one as I discovered in this study).

By contrast, scholarship tax credit programs, like the one in Pennsylvania, give rise to a multitude of different organizations that provide tuition assistance to poor families. If any one of those organizations decides to impose a particular set of restrictions on the use of its scholarships, it has no effect on any of the other organizations. Parents looking for financial assistance are thus free to seek it from a scholarship organization that aligns with their needs and values. The multiplicity of different sources of funding is instrumental—in fact it is essential—in ensuring that poor parents’ choices are not curtailed.

I’ve made this argument in a variety of places, most recently in a U.S. Supreme Court brief in the Arizona tax credit case ACSTO v. Winn.

Government, Education, and Freedom is a post from Cato @ Liberty - Cato Institute Blog

I was tied up when the massive Atlanta School District cheating scandal broke last month, and so didn’t get around to blogging it. [Recap: nearly 200 teachers and principals in half of the district's 100 schools were involved]. But, with other large-scale cheating investigations still on-going, U.S. Education Secretary Arne Duncan was asked about the problem yesterday during a video-taped “Twitter town hall” (minute 12:00). Specifically, he was asked if the high-stakes tests mandated by NCLB are to blame (minute 16:50). Though Duncan made an off-hand comment that high-stakes NCLB-required tests may have contributed to the pressure that lead to the cheating, he repeatedly blamed the cheating on a uniquely “morally bankrupt culture” in Atlanta’s public schools. That didn’t convince interviewer John Merrow, who cited several other cities where cheating investigations are underway—nor should it convince you.

The problem is not that Atlanta is the Sodom and Gomorrah of public schooling. The problem is that state schooling separates payment from consumption. The accountability mechanism of competitive markets—the only such mechanism that actually works—requires the payer to also be the consumer, because the central incentive for any service provider is to please the payer. So if the consumer isn’t paying, he or she is rendered relatively unimportant in the eyes of the provider. Atlanta parents want their children to be well educated, but a lot of work is required to meet that goal. State and federal bureaucrats just want high scores on NCLB-mandated tests—that’s much easier to achieve by cheating than by doing an excellent job teaching. So there is an incentive for school officials to cheat because they are paid by the bureaucrats, not by the parents. Not every teacher succumbs to this incentive, of course, but the incentive is very clearly putting pressure in the wrong direction.

Now consider the incentive structure of schools paid directly by parents in tuition. The incentive in that scenario is to give parents what they want, which is usually a high quality education for their children. Certainly schools could try to lie to parents about how well their children are doing, but this is much harder than lying to bureaucrats. A great many parents will notice a discrepancy if their illiterate children are awarded A’s. And parents considering a school will notice a discrepancy if the “A”-graded graduates of that school somehow cannot gain admission to, or often drop out of, the next higher level of education. Word of mouth—and now word-of-social-networking-apps—is a powerful thing. So it’s much harder for parent-funded schools to get away with cheating, even if they were predisposed to use that strategy.

This is why no system of education that relies exclusively on third-party payment will ever match the quality and progress that we have come to expect in every other field. Indeed, it argues for finding ways of ensuring universal access to education that rely, as much as possible, on direct payment of tuition by parents. Of all the currently viable education policies, the one that fits that description best is the education tax credit—particularly direct credits for families’ own education expenses. And, among third-party payment methods, scholarship tax credits also have advantages over the alternatives.

This is a reality many folks will not want to hear or accept, but reality is not optional.

The Sodom and Gomorrah of Public Schooling? is a post from Cato @ Liberty - Cato Institute Blog

As Neal wrote about earlier, Education Next has released their new poll, and there are some interesting results.

Surprisingly, the authors buried the lede in their writeup; education tax credits consistently have more support and less opposition than any other choice policy.

This year, donation tax credits pulled in a 29-point margin of support (that’s total favor minus total oppose). In contrast, charter schools had a 25-point margin of support.

The authors added a new, less neutral voucher question that boosted the margin of support to 20 points. They couched the policy in terms of “wider choice” for kids in public schools, and the implication was that it was universal. All three of these additional considerations tend to have a positive impact on support for choice policies.

The standard low-income voucher question showed a big jump this year from a -12 in 2010 to a 1-point margin of support. The last time Education Next asked a low-income tax credit question, it garnered a 19-point margin of support.

Last year, tax credits had a 28-point margin of support (that’s total favor minus total oppose). In contrast, charter schools had a 22-point margin of support and vouchers for low-income kids went -12 points (more respondents opposed).

Public opinion is consistently and strongly in favor of education tax credits over vouchers and even charter schools. And thankfully, they’re a much better policy as well.

Education Tax Credits More Popular Than Vouchers & Charters is a post from Cato @ Liberty - Cato Institute Blog

Charles Krauthammer’s latest column is titled “The Union-Owned Democrats.” In it, he recounts a litany of economically ruinous actions being pursued by unions around the country, from blocking free trade agreements to hobbling Boeing’s efforts to compete with Airbus. He writes that “unions need Democrats — who deliver quite faithfully,” and that “Democrats need unions.”

Like a hole in the head.

Yes, it’s been a politically and financially symbiotic relationship for many decades. Unions get rents, Democrats get elected. But, as I argue in a cover story for The American Spectator this month (now on-line: “A Less Perfect Union“), it can’t last.

The biggest unions of all are the public school employee unions—the AFT and the NEA—with well over 4 million members between them. As I point out in my Spectator piece, these unions have become too successful for their own good—and for the good of the Democratic party.

In their game of Monopoly with American kids and taxpayers they have created staggering bloat in public school employment (which has grown 10 times faster than student enrollment over the past 40 years), and they have wheedled total compensation packages worth $17,000 more per year than those of their private sector counterparts (who, according to most of the research, outperform them in the classroom).

But the union-led public school spending spree has nearly bankrupted states all over the country. If California’s public schools had just maintained the same level of efficiency they’d had in 1970 (not gotten better, as other fields have, just stagnated), it would turn the state’s $26 billion deficit hole into a surplus.

Americans are rapidly running out of money to pay for their states’ school monopolies, and they are rapidly introducing school choice bills (42 states have done so this year), to give families alternatives. But as families escape the highly unionized monopoly and send their kids to school in the largely non-unionized private sector, teachers union power will implode. And resentment at having been gored for so long by the now bankrupt and discredited system will focus on the party that fought to preserve it until the bitter end… Democrats.

In my Spectator piece, I explain why that would be a bad thing, and what Democrats could do to avoid that fate. “Public schooling” is just a tool, and an ineffective, unaffordable one at that. Public education is a set of goals and ideals that can be advanced much more effectively by other policy mechanisms. The sooner Democrats realize that, the less likely they are to be dragged to the bottom of the political sea by the sinking union-helmed school monopoly.

Are Unions Really Good for Democrats? is a post from Cato @ Liberty - Cato Institute Blog

I like the nightlife, and I’ve got to boogie, so I’m pleased to hear of a new organization called DISCO: Democrats Impatient for School Choice Organization.

There are many ways to shake, shake, shake that education policy booty, however, and if DISCO really wants to be family friendly, they would be better off skipping the voucher element of their choreography.

The organization’s goal is to extend real school choice to low income families. A crucial element in achieving that goal is to ensure that parents, not influential lobby groups or entrenched interests, get to decide the kinds of education they can choose.  Based on both my review of the historical evidence and my recent regression study of modern school choice programs, vouchers are prone to regulatory proliferation. They centralize authority over what a voucher can buy, so that parents who need financial assistance cannot escape whatever limits the politically powerful wish to impose on them.

Tax credits are different. Scholarship donation tax credit programs, such as the one that already exists in Pennsylvania (and which the state House has voted 190 to 7 to expand) create a proliferation of different sources of financial assistance for low-income families. So if one of those sources decides to impose a particular set of rules on how the money is used, it doesn’t affect any of the others. Parents can choose to seek financial assistance from whichever scholarship granting organization most closely matches their own values and preferences, thereby preventing them from being forced into a particular set of choices.

I made this argument in a little more detail in Cato’s amicus brief in the ACSTO v. Winn case, in which the U.S. Supreme Court recently upheld Arizona’s scholarship donation tax credit program.

Family Friendly DISCO Moves is a post from Cato @ Liberty - Cato Institute Blog

I am often told that pointing out the serious shortcomings of government-funded school vouchers and the relative superiority of education tax credits is a case of “making the perfect the enemy of the good.”

It’s isn’t.

That is a misapplication of Voltaire’s famous aphorism. What the aphorism exhorts is that we not pursue an unattainable perfection when a good alternative is within reach. Education tax credits are not only attainable, they are usually easier to obtain than vouchers. Consider a recent example: Pennsylvania’s state House has voted 190 to 7 to expand its existing EITC tax credit program while the state Senate has been deadlocked for weeks looking for the bare minimum of votes to pass a voucher bill.

On top of that, it is dubious to cast vouchers as “the good” when they will expand the scope of compulsion of taxpayers to funding many new types of schooling to which they might well object, impose heavy new regulations on private schools (homogenizing the available “choices”), and more pervasively curtail direct payment by consumers in favor of third party government payment.

Even those who may not be fully convinced that vouchers are inferior should pause before trying to enact them in states that already have education tax credit programs with good growth prospects. Why make the dubious the enemy of the pretty darned good?

Don’t Let the Aphorism Be the Enemy of Thought is a post from Cato @ Liberty - Cato Institute Blog

The Pennsylvania state House has just passed an expansion of its existing k-12 scholarship-donation tax credit program. The vote was a deafening 190 to 7 in a state that has voted Democratic in every one of the last five presidential elections.

Nevertheless, there is serious opposition to this expansion of education tax credits in the Senate, where several prominent lawmakers prefer a voucher bill. It’s not clear which path the legislature will ultimately take, but there seems to be considerable agreement on the goal: giving parents true freedom of choice in education.

A key point to consider, then, is which type of program is most likely to preserve the freedom and diversity of the education marketplace, thereby giving families a meaningful range of alternatives to choose from. I ran a regression study on precisely this question last fall (now forthcoming in the peer-reviewed Journal of School Choice). What I found is that vouchers impose a large and statistically highly significant burden of additional regulation on private schools while tax credits do not.

This is not the only advantage of the tax credit program, but it is a compelling one.

Educational Freedom in Pennsylvania is a post from Cato @ Liberty - Cato Institute Blog

Ruling in ACSTO v. Winn today, the United States Supreme upheld Arizona’s k-12 scholarship tax credit program. Under this program, individuals receive a tax cut if they donate to a non-profit scholarship fund that gives out private school tuition aid.

Today’s decision, a reversal of an earlier ruling by the 9th Circuit, found that the respondents had no right to sue to stop the AZ program because they have not been harmed by it. And the reason they have not been harmed is central to why, for nearly 20 years, I have favored education tax credit programs over both traditional public schooling and voucher programs.

Respondents alleged that cutting a person’s taxes is equivalent to spending government money — and since taxpayers are receiving credits for donations to religious organizations, that was ostensibly equivalent to the government giving to those organizations. The Court answered, quite simply: “That is incorrect.” Elaborating, the Court ruled that:

tax credits and governmental expenditures do not both implicate individual taxpayers in sectarian activities. A dissenter whose tax dollars are “extracted and spent” knows that he has in some small measure been made to contribute to an establishment in violation of conscience…. [By contrast,] awarding some citizens a tax credit allows other citizens to retain control over their own funds in accordance with their own consciences.       [emphasis added]

That is precisely the argument I have been making for a very long time (last Friday, at a conference in Berkeley; last year in a blog post, here; a dozen years ago, in my book Market Education: The Unknown History).

With this ruling, the way forward for the school choice movement is clearer than it has ever been. Education tax credits — both the scholarship form operating in Arizona and the direct form operating in Illinois and Iowa — allow for universal access to the education marketplace without forcing any citizen to subsidize instruction that violates their convictions. No other school choice system offers that advantage and it is an advantage that is central to the values of our nation. As Thomas Jefferson wrote in the Virginia Act Establishing Religious Freedom:

To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves… is sinful and tyrannical

Public schooling has long been a source of social conflict because it engenders just such compulsion. Education tax credits offer a way of securing universal public education without this blight. It is time to adopt them more widely.

VICTORY! Supreme Court Upholds Education Tax Credits is a post from Cato @ Liberty - Cato Institute Blog

School Choice Week is here, and there are a lot of people trying to spread the good word about the benefits of increasing educational freedom.

But what benefit of choice is best to focus on?

You can make at most a few points in an oped or on talk radio. On TV, and even in print reporting, you’re lucky to get one point across. And with friends and family, and even politicians, you need to keep the focus where it will do the most good.

So, should you focus on how horrible inner-city schools are, how many lives are destroyed in a failing government system? Maybe. Depends on the person, certainly.

But the evidence suggests that the best message overall is one that focuses on the financial benefits of school choice (and this is even before the financial crisis). People think about vouchers and education tax credits differently. And be careful trying to pull at Democratic heart-strings with arguments that choice will increase educational equity for poor kids . . . there’s evidence that it backfires!

Take a look at this slide presentation that describes how the public thinks about private school choice, what you should emphasize, and what you should be careful with . . . it’s not just my opinion, it’s based on evidence from a unique message experiment:

How to Think & Talk About Vouchers & Ed Tax Credits is a post from Cato @ Liberty - Cato Institute Blog

VerBruggen signs off on the tax cut/government check debate by doubling down on the core issue; he believes that there is no meaningful difference between government spending and a tax cut.  I will quote him in full: “If some libertarians want to keep insisting that there’s a meaningful difference between (A) the government spending $500 on something and (B) a person “donating” $500 to that thing and then getting a $500 break on his taxes in return, there’s nothing I can do to stop them.”

In this, he has the company of the 9^th Circuit and the Progressive wing of SCOTUS.

VerBruggen has also rightly asked for a correction to one of the numerous quotes I pulled from his blog posts on tax cuts vs government spending. I thank him sincerely for reading through to the end of my interminable post. The correct quote is below, with the omitted, qualifying language in italics, a new note on charitable giving and government spending, and my otherwise unchanged commentary:

He insists that “much (most?) deducted charity spending does not offset government spending in the slightest,” yet also agrees that “voucherizing the tax subsidies for charity would remove the incentive to donate” to the range of charitable and social welfare activities the government supports. [Note: There is much evidence that government spending on "charity" crowds out charitable giving. And most, not to mention much, charitable giving in the U.S. is devoted to health, educational, social welfare and religious organizations which in turn focus on assistance to the poor, health and educational activities. Needless to say, the government is deeply involved in health, education and welfare spending. See the index of Arthur Brooks' fascinating book, Who Really Cares, for more details.]

Charity does not reduce pressure on the welfare state? The billions of dollars donated to health, education, welfare . . . these offset nothing in the public sector? In the absence of tax expenditures for employer-provided health care, how likely is it that the U.S. would have retained a relatively robust private medical market?

The charitable deduction allows the people who earned the money our governments spend on public “charity” to keep some portion of what the government would otherwise have spent on government “charity” or some other wasteful project.

If VerBruggen is concerned that the tax burden will marginally increase on some citizen as the result of another’s charitable deduction then the answer is to balance that lost revenue with a reduction in government “charity,” not to eliminate the deduction.

Perhaps most concerning is VerBruggen’s breezy assumption that all income belongs to the government. He insists that “taxpayer money is already allocated” in the form of deductions for charity, and therefore that “voucherizing the total amount of the deductions wouldn’t change that . . .”

Really? Tax credits and deductions belong to the taxpayer who earned them. They are not government funds; that is a legal and logical statement. To insist otherwise is to argue that all income is the governments, and what it does not claim is ours. The money that a taxpayer spends is HIS money, not the government’s.

And, as is noted above, voucherizing charitable deductions will convert a huge portion into direct welfare payments and eliminate the core of the charitable act; giving away one’s own money.

Tax Cuts vs. Government Checks . . . NRO Conclusion and Correction is a post from Cato @ Liberty - Cato Institute Blog

Tomorrow morning, the United States Supreme Court will hear one of the most important education cases in a generation: the appeal of a 9th Circuit ruling that would cripple or end Arizona’s k-12 scholarship tax credit program.

As you’d expect, commentators aren’t sure how the Supreme Court will ultimately rule: it may decide to overturn the 9th Circuit on the merits of the case, or it could overturn the 9th Circuit on the grounds that the plaintiffs never had standing to sue in the first place. Heck, there might even be people who think SCOTUS will uphold the lower court’s ruling… can’t actually find anyone who thinks that, but they could be out there… somewhere.

On the merits, the law and evidence are clear. Arizona’s program allows private individuals to donate to non-profit k-12 scholarship organizations and get a tax credit when they do–much as federal tax deductions are available for donations to non-profit charities. Since federal deductions for donations to religious organizations are Constitutional, the same applies to the credits in the AZ case. Respondents (those trying to kill the program) didn’t marshal a serious argument to the contrary. In fact, one of the cases they cite actually eviscerates their own argument, as I noted in Section II (b) of the Cato Institute Winn brief co-written by Ilya Shapiro and myself.

The rest of Respondents’ merits arguments are equally ineffectual, not only taking a form (relying on a moving statistical target) that has already been explicitly rejected by the Supreme Court in Zelman and elsewhere, but actually being wrong on the facts as well (see Section IV of the Cato brief linked above).

But while I’ve been exclusively focused on the merits of the case, it seems that the legal experts defending Arizona’s tax credit program have been arguing that the Respondents (originally, the Plaintiffs) never had a right to sue in the first place (“standing”), because they cannot show, in the context of Supreme Court precedents, how they have been harmed.

Both the SCOTUS blog’s reporter and independent experts seem to think the Court will overturn the 9th Circuit on the standing issue before even considering the merits, and I’m confident that the Court will overturn on the merits if it ever gets that far.

If the ruling comes down in either of those ways, modern education tax credit programs will retain their perfect record of never having been overturned by a court–a record not enjoyed by any other private school choice policy. The reason that is so very important is explained in the final section (V) of our Cato brief.

How Do I Overturn Thee? Let Me Count the Ways is a post from Cato @ Liberty - Cato Institute Blog

Robert VerBruggen of NRO believes that the only difference between allowing taxpayers to direct their own funds according to their individual preferences and having the government pool all tax dollars and distribute them according its collective preference is political, not principled. A mere technicality rather than a fundamental distinction.

Moreover, VerBruggen contends that it is dishonest to use tax credits instead of direct government spending.

If that’s true, why don’t we voucherize charitable giving?

The feds should eliminate the charitable tax deduction and send out the average (tax-forgiven) amount donated per adult to every citizen in the country to donate as they wish! Would this be more honest? Is there no fundamental difference between these two approaches?

Sure, some people would complain about how their tax dollars were being redistributed to, say, support abortion clinics or the Catholic Church or PETA. They would carp about how they, as taxpayers who earned that money in the first place, should be the ones to direct their money to the charity of their choice. They would complain that pooling the money and doling it out to people who didn’t earn it to use at their own discretion, according to some criteria determined by the government, is unfair and wrong. Are these just technicalities?

Is direct government spending on universal charity vouchers really no different than giving individual taxpayers the freedom to donate to the charities of their choosing?

Would universal charity vouchers be preferable to the individual tax deductions for charitable donations that we have today, from the standpoint of minimizing compulsion and social tension? To claim that school vouchers are equal to or better than tax credits on these grounds is to claim that universal government charity vouchers would be better than the system we have today.

“By letting citizens do the government’s job of allocating tax money to the preferred area,” VerBruggen insists, “politicians can avoid controversy, claiming they’re merely enabling ‘donations.’” He therefore concedes, “so maybe there’s something to Coulson’s argument about avoiding social conflict, if only because people mistakenly think there’s a meaningful difference between the two funding mechanisms.” While VerBruggen supports direct government vouchers, using “[tax expenditures] is a dishonest way to get them.”

VerBruggen seems pre-committed to charity vouchers. It’s the only honest thing to do. Anyone else on board with that?

Universal Charity Vouchers. A Conservative Solution? is a post from Cato @ Liberty - Cato Institute Blog

Most people would agree with Chris Edwards that the federal tax code is insanely complicated. The IRS Commissioner doesn’t do his own taxes, the Treasury secretary and other Washington policy experts haven’t paid what is owed, and the already overwhelmed IRS would be given an expanded role under the Democrat’s health care legislation.

A key problem is that the social engineers on Capitol Hill have run amok. Recently, they have been enamored with home-buying tax credits, and CNN.com notes how it is further overwhelming the IRS bureaucracy:

On Thursday, CNNMoney revealed that buyers who purchased their properties after Nov. 6 were unable to claim the refund because the Internal Revenue Service had yet to release a new form and instructions. But on Friday, the IRS finally posted the new form 5405.

Claiming the credit now requires sending paperwork to the IRS — no e-filing allowed:

And these new buyers can no longer file electronically. They have to mail in paper forms, including the new 5405, whether they are amending their 2008 taxes or claiming it on the 2009 taxes that are being filed this spring. That is going to dramatically slow refunds, but taxpayers can’t blame the IRS. Instead, it’s people scamming the system who are at fault. For example, in October tax preparer James Otto Price III was the first person convicted of this crime. He falsely claimed the credit for 15 clients. So buyers must now file documentation with their taxes — including proof of residency, a signed mortgage statement and drivers license — which the e-file system is not equipped to handle.

The original homebuyer tax credit, which became available in April 2008, generated a nightmare of fraud. In one case, the credit was claimed by a four-year-old. Even IRS employees filed “illegal or inappropriate” claims for the credit. As a result, when Congress extended and expanded the credit in November, the IRS began requiring extra documentation.

Thus, micromanagement through the tax code is a bureaucratic Catch-22. If the IRS streamlines the paperwork, tax breaks get riddled with fraud and abuse. If it tries to cut down on the fraud and abuse, taxpayers and federal workers get bogged down in a pile of wasteful paperwork.

The solution to the problem is for the government to get out of the social engineering business. Federal attempts to foster homeownership are a perfect example of why such attempted engineering can ultimately cause more harm than good. The homebuyer tax credit should be allowed to expire at the end of April, and the federal tax subsidies for homeownership should be ended.

Homebuyer Tax Credit Complications is a post from Cato @ Liberty - Cato Institute Blog

Huge deficit spending, a supposed stimulus bill, and financial bailouts by the Bush administration failed to stave off a deep recession. President Obama continued his predecessor’s policies with an even bigger stimulus, which helped push the deficit over the unimaginable trillion dollar mark. Prosperity hasn’t returned, but the president is persistent in his interventionist beliefs. In his speech yesterday, he told the country that we must “spend our way out of this recession.”

While a dedicated segment of the intelligentsia continues to believe in simplistic Kindergarten Keynesianism, average Americans are increasingly leery. Businesses and entrepreneurs are hesitant to invest and hire because of the uncertainty surrounding the President’s agenda for higher taxes, higher energy costs, health care mandates, and greater regulation. The economy will eventually recover despite the government’s intervention, but as the debt mounts, today’s profligacy will more likely do long-term damage to the nation’s prosperity.

Some leaders in Congress want a new round of stimulus spending of $150 billion or more. The following are some of the ways that money might be spent from the president’s speech:

• Extend unemployment insurance. When you subsidize something you get more it, so increasing unemployment benefits will push up the unemployment rate, as Alan Reynolds notes.”

• More infrastructure spending. This will lead to misallocation of resources since only markets can allocate resources efficiently. Governments allocate capital on the basis of politics instead of economics.

• “Cash for Caulkers.” This would be like Cash for Clunkers except people would get tax credits to make their homes more energy efficient. Any program modeled off “the dumbest government program ever” should be put back on the shelf. 

• More Small Business Administration lending. A little noticed SBA program created by the stimulus bill offered banks an “unprecedented” 100 percent guarantee on loans to small businesses. The program has an anticipated default rate of 60 percent. Small businesses need lower taxes and fewer regulations, not a government program that perpetuates more moral hazard.

• More aid to state and local governments. State and local government should be using the recession to implement reforms that will prevent them from going on another unsustainable spending spree when the economy recovers. Also, we need fewer state and local government employees – not more – as they’re becoming an increasing burden on taxpayers.

The president said his administration was “forced to take those steps largely without the help of an opposition party which, unfortunately, after having presided over the decision-making that led to the crisis, decided to hand it to others to solve.” Mr. President, nobody has forced you to do anything. You’ve chosen to embrace – and expand upon – the big spending policies that were a hallmark of your predecessor’s administration.

Spending Our Way Into More Debt is a post from Cato @ Liberty - Cato Institute Blog

The Ethan Allen Institute has just published a report suggesting that Vermont could save $80 million a year by voucherizing its education system. What’s most interesting is how generous the prospective vouchers would be: $10,000 for K-6, and $14,900 for grades 7-12. How could such a system save money? The main reason is that Vermont was already spending $14,000/pupil on public schools across all grades four years ago. Taking into account the inevitable increase since then and the effects of inflation to 2009 dollars, the state is no doubt spending well over $15,000 per pupil today, so EAI’s ample voucher funding would still cost far less than the status quo.

The only problem is that, as the EAI report notes (see p. 10), Vermont’s state supreme court has ruled against state funding of sectarian schools. So tax credits would be a better option for that reason, among others.

Vermont Could Save Millions with Private School Choice is a post from Cato @ Liberty - Cato Institute Blog

The latest fiscal impact review of Arizona’s scholarship tax credit programs estimates that they saved between $44 million and $186 million last year.  The programs offer individuals and businesses dollar-for-dollar tax credits if they make donations to non-profit K-12 scholarship-granting organizations. Those organizations, in turn, provide private school tuition assistance.

This is much higher than the savings estimate offered by the Arizona Republic last month, as the AZ Republic story linked above is quick to point out. I deal with the reasons for the discrepancy below, but first, here’s the crucial fact that the Republic has missed yet again: if the tax credit programs were significantly expanded, such as by raising the donation caps, the state would undeniably save many hundreds of millions of dollars annually. In fact, if the share of AZ schoolchildren participating in the program rose to just 40 percent, taxpayers would save billions of dollars a year – even if the size of the individual scholarships had to triple to achieve that result.

The Republic’s failure to report that inescapable and rather important fact does it no credit.

Now, on to the reason for the discrepancy in savings numbers. The body of the story hints at it: the Republic’s estimate assumed that private school enrollment would have been flat or increasing without the tax credit program, while the latest estimate does not.

As I pointed out at the time, the Republic’s assumption is demonstrably mistaken. Official AZ statistics show that enrollment in private schools peaked before the tax credit program had gotten under way, and had begun to decline as a result of rapid growth in the (tuition-free) charter school sector. So the Republic’s savings estimate was almost certainly too low.

As the author of the latest study admits, his assumptions about the true number of students who have migrated to private schools as a result of the program are speculative, but at least they are reasonable and not obviously erroneous, as the Republic’s were. In any event, the savings from a much larger migration to the private sector are not in doubt.

K-12 Education Tax Credits Save Millions is a post from Cato @ Liberty - Cato Institute Blog

The core of Keynesian economic policy is that the government must come in and replace reductions in private sector demand with public sector demand, therefore bringing overall demand back to its previous level.  One of the many flaws in this thinking is in assuming that the previous level of demand was “correct” and getting us back to that level is the appropriate policy response.

Take the example of the housing market and the government response.  The primary response of Republicans in Washington has been to offer tax credits and other incentives to replace the drop in demand for housing.  Witness Senator Johnny Isakson’s  recent comments on why we need to extend the $8,000 homebuyer tax credit: “If you take that kind of business out of what’s already a very weak housing market, you do nothing but protract and extend the recession.”

This analysis could not be more wrong.  The tax credit largely acts to keep housing prices from falling further.  However, that is how markets are supposed to clear in an environment of excess supply.  If there’s too much housing, the way to address that is to allow housing prices to fall, which attracts buyers back into the market.

We should also recognize that the tax credit does not help the buyer, it helps the seller, by allowing the seller to charge that much more for the price of the home.

Perhaps the worst impact of the policy is that it encourages the continued building of homes, only adding to the over-supply, which itself will “protract and extend the recession.”  Witness the recent news that housing starts in the US just hit a nine month high.  While these levels are still low in historic terms, and housing inventories are declining, we still have an excess of housing.  The damage done by creating a false floor to housing prices is that builders don’t respond to inventory, they respond to prices, and as long as there is a positive gap between prices and construction costs, builders will build.  The tax credit only serves to widen that gap between prices and construction costs.

Back to Keynes: the central flaw in the thinking behind the tax credit proposal is its assumption that we need to re-inflate the housing bubble.  The previous level of housing demand, from say 2003 to 2006, was not driven by fundamentals; we had a bubble.  There will be a correction in the housing market.  Our choices are to either take that correction quickly and move on, or to prolong that correction, maybe even make it worse, by trying to create a false floor to the market.

Republicans Just as Guilty of Flawed Keynesian Thinking is a post from Cato @ Liberty - Cato Institute Blog

The Chicago Tribune reports today that education tax credits are still being pursued despite huge holes in Indiana state budgets . . . maybe because school choice saves money?

[Indiana] Republican Gov. Mitch Daniels’ budget proposal includes a scholarship tax credit that supporters say would give poor students the opportunity to attend private schools, but opponents say would open the door to vouchers.

Daniels’ budget proposal includes a 50 percent tax credit for donations to a nonprofit scholarship-granting organization that helps students from low-income families attend their choice of a private school or a public school outside their home district.

A couple of quick points.

I’m not sure how this would “open the door to vouchers,” since credits are an alternative form of school choice and obviate the need for vouchers.

Gov. Daniels should promote a 100% tax credit for donations, not a 50% credit. At the least, he can drop that to 90% like the successful Pennsylvania credit program. But 50% is simply too low to act as an effective catalyst for serious reform. And as we all know, its best to aim high at the start of negotiations so you have somewhere to go. He’s selling himself and his state short on this.

Education Tax Credits Still on the Table in Indiana is a post from Cato @ Liberty - Cato Institute Blog

A tax credit bill was recently proposed in South Carolina to give parents an easier choice between public and private schools. It would do this by cutting taxes on parents who pay for their own children’s education, and by cutting taxes on anyone who donates to a non-profit Scholarship Granting Organization (SGO). The SGOs would subsidize tuition for low income families (who owe little in taxes and so couldn’t benefit substantially from the direct tax credit). Charleston minister Rev. Joseph Darby opposes such programs, and I support them. We’ve decided to have this dialogue to explain why. Our closing comments appear below, and the previous installments are here and here and here.

Rev. Joe Darby

Closing Comment

Thanks for the research and references, Andrew, but I don’t live in Milwaukee, Africa or India – I live and grew up in South Carolina, and I remember when my state resisted desegregation. I remember the news reports, white protests and rhetoric about new private schools, where white children would be "safe." Attorney Tom Turnipseed, a repentant racist in Columbia, SC, fought to create those schools and now willingly admits his prejudiced motivation for doing so. That legacy needs to be acknowledged and those schools need to demonstrate that they’ve changed before many citizens will be comfortable with them.

Many white parents who didn’t send their children to private schools in those days simply couldn’t afford to do so without governmental assistance. An irony of American racism is that poor whites have also suffered, but have been culturally conditioned to not collaborate with or trust those of other colors who have common interests.

Having said that, let me keep my promise from my last installment of our dialogue. You noted that some private school parents of modest means have found ways to augment government funding for things like transportation and uniforms. I said that I wasn’t surprised, because good parents will go to great lengths for their children’s well being – and have done so for years without public funding of private schools. My wife and I did so when we were young, struggling parents.

Our sons attended V.V. Reid Kindergarten and Day Care in Columbia, SC – a 54 year old private facility sponsored by Reid Chapel AME Church. That predominately black school has a reputation for excellence and a long waiting list, and now includes an elementary school. The tuition was – and still is – considerable, but we paid it as a matter of parental choice. They also attended and graduated from public elementary, middle and high schools – now labeled as "failing" – and are now very successful men. They attended V.V. Reid with the children of physicians and attorneys and the children of janitors and cooks, but all of those children had one thing in common – their parents paid – and still pay – the full tuition. V.V. Reid does not accept any government funds and the current pastor, Rev. Norvell Goff, says that they aren’t seeking governmental funding and don’t support tuition tax credits and scholarships. As Rev. Goff said, "Parents who care will pay the price."

That points to what most puzzles me about the fight to give private schools public money, allegedly to educate needy children. The idea’s most consistently strident uncompensated supporters in South Carolina are not those of modest means or progressive political mind set, but conservative legislators and interest groups who usually tell the needy to pull themselves up by their "bootstraps" and consistently oppose what they call "handouts" or "pork" for struggling communities. From health care to infrastructure to housing, they condemn governmental involvement in the private sector, but they make a remarkable exception for education. Could they have had a miraculous social epiphany on education, or could they possibly see a financial and social benefit for their constituents and neighbors that wouldn’t be rhetorically prudent in "selling" privatization to struggling families?

I’ll conclude our dialogue with that question, with thanksgiving that a bipartisan, biracial majority of our Senators killed South Carolina’s current privatization legislation last week, and with the wise and true words of SC Education Secretary Jim Rex – when businesses consider locating in South Carolina, they never ask, "How are your private schools." Public education does matter. I’m also sure the issue isn’t entirely dead, so be blessed, take care, and we’ll chat next year.

***

The Rev. Darby is senior pastor of the AME Morris Brown Church in Charleston, and First Vice President of the Charleston Branch of the NAACP.

Andrew Coulson

Closing Comment

You wrote that "dangerous buildings can… be expeditiously made excellent and secure while occupied and before they catch fire…. The chronic inequities in public education can be expeditiously addressed with will and commitment."

"Before they catch fire"? Nearly half of all children in South Carolina drop out before finishing high school. Nearly HALF! Public schooling is burning NOW. It’s been ablaze for decades, reducing countless children’s dreams to ashes. Having another meeting to discuss fire codes would be madness. We need to get a ladder to these kids today.

And "fixed expeditiously with will and commitment"? Spending per pupil has more than doubled in real terms over the past forty years. Two generations of would-be reformers have worked feverishly to improve the system, passing one education bill after another at the state and federal levels, and introducing countless revisions to the curriculum and teacher training policies. Class sizes have been reduced, teachers’ salaries have been raised. Short of ritual sacrifices, there is nothing that has not already been tried, repeatedly, to fix the public schools.
You wrote that "studies on the success of privatization… are a ‘wash’ — each of us can find support for our positions." This is simply not true. As I’ve noted, the research findings comparing market to monopoly schooling all over the world favor markets by a margin of 15 to 1. That’s based on the most comprehensive literature review to date. Social science, while imperfect, is science. And on this point, it is unambiguous.

As for your statement that South Carolina significantly and systematically underfunds rural black districts along the I-95 corridor, I decided to check it out. Using this year’s data from South Carolina’s General Appropriations spending bill, I calculated the average expenditure per pupil: $11,815. For rural districts along the I-95 corridor, it comes to $11,743 — a difference of $72.

You’ve said that, in the wake of the civil war, some middle-class blacks excluded lower-class blacks from their private schools. If that’s true, I would certainly join you in lamenting their behavior. But who is guilty of this cruelty today? Who is currently trying to keep poor young blacks from getting easier access to private schools? The NAACP supports scholarships for low-income students to attend private colleges, but fiercely opposes the same practice at the elementary and high school levels. Who’s blocking the schoolhouse door now?

Fortunately, school choice is advancing despite such misguided opposition. There are dozens of choice programs around the nation, and the best among them are growing rapidly and with bi-partisan support. Some black leaders of your own generation, such as South Carolina Senator Robert Ford, have gotten on board. Even more of the next generation of black leaders, from Corey Booker in New Jersey to Kevin Johnson in Sacramento, are on board as well. And some of the most eloquent voices in support of educational freedom are beneficiaries of school choice.

Perhaps, if you talk with some of the tens of thousands of families benefitting from school choice around the country, you’ll be convinced to join them aboard the educational freedom train. It’s pulling out of the station regardless.

In closing, I’d like to thank you for participating in this exchange. I hope people on all sides of the debate have found it useful.

***

Andrew Coulson is director of the Cato Institute’s Center for Educational Freedom, and author of Market Education: The Unknown History.

A Dialogue on School Choice, Part 4 is a post from Cato @ Liberty - Cato Institute Blog