Taxpayers Earning $80,000+ Receive Nearly Half of Tax-Credit Dollars During 2001 Tax Year

For the second straight year, the biggest beneficiaries of Illinois’ tuition tax credit law are its most affluent taxpayers—those earning more than $80,000 annually. This finding, based on newly released state data, shatters promises made by supporters of the 1999 law, who had argued that the measure would particularly benefit Illinois’ low-income families. The windfall being provided to upper-income taxpayers is detailed in a report released today by People For the American Way (PFAW).

The report, Who Gets the Credit? Who Pays the Consequences?, finds that in the 2001 tax year (returns filed in 2002), nearly half of all Illinois’ tuition tax credit dollars were received by taxpayers with annual incomes of over $80,000. As the report observes, the cost of the tuition tax credit program is increasing and has erased nearly $130 million in tax revenues during its first two years. This impact has been particularly painful during the current state budget crisis, shortchanging programs that could address the needs of low-income and disadvantaged students.

Who Gets the Credit? reinforces conclusions in last September’s PFAW Foundation report, Misplaying the Angles. In the aftermath of last year’s report, Illinois’ former superintendent of education, Glenn “Max” McGee, acknowledged that the tuition tax credit law “probably has not served its intended purpose. Maybe I was naïve. I said this was going to benefit poor kids.”

By analyzing data from the tuition tax credit’s second year, Who Gets the Credit? provides additional evidence that the law has failed to fulfill its supporters’ promises, while placing further stress on a state education budget that has already been cut substantially. .

“This report explains the destructive effect this law has had by diverting tax revenues that could otherwise have helped students who are most in need,” explained PFAW President Ralph G. Neas. “With this law, Illinois has chosen a misguided strategy that siphons millions of tax dollars that could have funded smaller classes, after-school programs or other proven strategies to raise achievement.”

Jan Czarnik, PFAW’s Illinois Director, echoed Neas’ concern. “Many promises were made when supporters were trying to drum up votes to pass this law in Illinois,” she said. “This report demonstrates the emptiness of those promises and why this law should be repealed.”

Data from the tax credit’s second year establishes a trend and shows that the Illinois law acts mainly as a subsidy for middle-class and wealthier parents, while providing minimal financial benefit to low-income parents. The report’s key findings include:

Virtually half of all 2001 tax-credit dollars—48 percent—went to taxpayers with annual incomes over $80,000. The share of tax credits going to this upper-income group actually rose slightly from 46 percent in the 2000 tax year.

Taxpayers earning $60,000 or more claimed two-thirds of the total tax-credit dollars ($45.4 million).

Fewer than 3 percent of Illinois’ tuition tax credit dollars went to the state’s poorest families—those earning $20,000 or less.

Over the two years of the program, the number of tax-credit recipients in the highest income bracket increased at 10 times the rate of low-income recipients.

In 2001, only about half of 1 percent of all Illinois taxpayers earning less than $20,000 claimed a tuition tax credit under the state law.

The private and religious schools that benefit from the tax credits are not held academically accountable to taxpayers in the ways that public schools are. For example, unlike public schools, private schools are not required to administer the Illinois Standard Achievement Test or publicly disclose the certification status of their teachers.

How the Tax Credit Works

In the 2001 tax year, the tuition tax credit was claimed by 189,055 Illinois taxpayers. The law allows parents to claim a tax credit on tuition, books and lab fees at public, private and parochial schools. Taxpayers can annually claim a 25 percent credit on qualified educational expenses they incur over and above $250, up to a maximum of $500 per family.

While the Illinois law was written to theoretically benefit taxpayers whose children attend public schools, public school parents receive very little in the form of tax credits. Since only private schools charge tuition—which can be a significant expense—the tax credit serves primarily as a reward for Illinois parents who send their children to private schools. Indeed, the law’s inclusion of public schools may simply have served as a way to secure political and/or legal support for the measure.

Illinois is one of six states that offer tax credits or deductions for private school tuition. Like these other states, Illinois adopted its law through a legislative act. In fact, supporters of tuition tax credits have never succeeded at the ballot box. Since 1981, three states and the District of Columbia have put tuition tax credits to a vote, and voters have rejected each of these ballot initiatives by decisive margins.

In recent years, tuition tax credits have gained new interest and attention in many states, as well as in Congress. Some proponents view tuition tax credits as a less controversial alternative to private-school voucher programs—and the recent track record appears to buttress this view. While only one state has succeeded in enacting a voucher law within the last six years, legislatures in four states have passed tax credit laws for private-school tuition during this same period. Yet the impact of vouchers and tuition tax credits is strikingly similar. Both approaches divert desperately needed tax dollars that could otherwise go to public schools.