Illinois Tuition Tax Credit Law Delivers Windfall for Affluent Families

Nearly Half of All Tax-Credit Dollars Go to Those Earning $80,000 or More; Law's Impact Reflects Illinois' Poor Ranking in Funding Equity

Supporters of Illinois’ 1999 tuition tax credit law argued that the measure would provide new educational options to the parents of low-income students. Yet a report released today by People For the American Way Foundation (PFAWF) shows that middle- and upper-income taxpayers are receiving the lion’s share of benefits from the state law.

In fact, nearly half of all tax-credit dollars — 46 percent — went to Illinois taxpayers earning more than $80,000 in the year 2000, while less than 3 percent of tax-credit dollars were claimed by taxpayers with annual incomes below $20,000.

The PFAWF report, Misplaying the Angles: A Closer Look at the Illinois Tuition Tax Credit Law, is available here.

“The people of Illinois were told that enacting a tuition tax credit law would enhance educational opportunities for all children,” said People For the American Way Foundation President Ralph G. Neas. “But the data expose this message as a cruel hoax. Even worse, the law has diverted tens of millions of dollars that could have reduced class sizes, strengthened reading programs or funded other reforms that are proven to help children learn.”

According to Misplaying the Angles, two-thirds of all tax-credit dollars went to taxpayers earning $60,000 or more. These redirected dollars exacerbate an already troubling situation dramatized by two national indicators that rank Illinois 49th out of the 50 states in funding the educational needs of low-income students.

How the Illinois Law Works

Illinois’ law allows parents to claim a tax credit on tuition, books and lab fees at public, private and parochial schools. Tax credits can be claimed for any full-time student enrolled in a K-12 school, who is a resident of Illinois and is under 21 years of age. While the state law potentially benefits taxpayers whose children attend public schools, Misplaying the Angles explains why the law, in practice, provides relatively few tax-credit dollars to public school parents.

“Make no mistake about it. No matter how they try to spin it, this law has served as a backdoor way to redirect public funds to private schools,” said Jan Czarnik, PFAWF’s Chicago director. “We’ve just witnessed a series of state budget cuts in education. In other words, we’re asking public schools to do more with less money even as millions of tax dollars flow to private schools through the tuition tax credit law.”

Based on PFAWF’s recent analysis of data from the Illinois Department of Revenue, the tuition tax credit law cost the state more than $61million in tax credits in the year 2000. Misplaying the Angles also notes that:

§ Illinois taxpayers who earned more than $80,000 received nearly 16 dollars in tax-credit benefits for every dollar received by those earning less than $20,000.

§ Taxpayers earning over $80,000 were more than seven times as likely to claim a tax credit under the state law than were taxpayers earning less than $20,000 annually.

§ While national proponents of tuition tax credits have claimed they give new options to students in low-achieving public schools, a Catholic official in Illinois has acknowledged that the tax credit law particularly benefits students already enrolled in private schools and even admitted that the law “may keep people in [parochial] schools who may otherwise have left.”

Tuition tax credits have not been popular with the American electorate. Since 1981, voters in three states and the District of Columbia have rejected ballot initiatives to establish tuition tax credits. The most recent initiative was defeated by Colorado voters in 1998.

In recent years, however, tuition tax credits have gained new interest, as some proponents have suggested tuition tax credits are less controversial than private-school voucher programs. Other supporters view tax credits as a complement to vouchers. Florida has enacted both voucher and tax credit programs, although one of its voucher laws was recently declared unconstitutional. In the wake of the June 27 ruling by the U.S. Supreme Court upholding the Ohio voucher law, state legislatures are likely to see an increase in both voucher and tuition tax credit proposals.

Findings Are Similar to Arizona Law

Misplaying the Angles paints a picture of the Illinois law that is strikingly similar to the findings from a PFAWF report last year on the impact of Arizona’s tuition tax credit law. The PFAWF report, A Model To Avoid, found that the Arizona law lacked accountability and was redirecting dollars to middle- and upper-income families. The findings in PFAWF’s report were reinforced by an analysis conducted by researchers at Arizona State University, available here.

The title of the Illinois report, Misplaying the Angles, borrows from a surprisingly candid assessment of the Arizona law. In March, a spokesperson for the pro-tax credit Goldwater Institute admitted that the Arizona law hasn’t lived up to its billing, telling a newspaper: “Has it only helped [poor families] more than moderate and wealthy families? Probably not. If it was sold that way, it’s only an angle.”

Arizona and Illinois are not the only states in which tuition tax credit supporters have used the ‘angle’ of helping low-income students as a means to garner support for their proposal. This is also how supporters pitched the 2001 Pennsylvania law that offers tax credits to businesses contributing to private-school tuition funds. Just last month, however, an analysis of the Pennsylvania law concluded that middle- and upper-income families are receiving the bulk of tax-credit dollars through private-school tuition assistance.

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