Toward a Free Market in Education: School Vouchers or Tax Credits?

More and more Americans are coming to recognize the superiority of private schools over government-run or “public” schools. Accordingly, many Americans are looking for ways to transform our government-laden education system into a thriving free market. As the laws of economics dictate, and as the better economists have demonstrated, under a free market the quality of education would soar, the range of options would expand, competition would abound, and prices would plummet. The question is: How do we get there from here?

Andrew Bernstein offered one possibility in “The Educational Bonanza in Privatizing Government Schools” (TOS, Winter 2010-11): Sell government schools to the highest bidders, who would take them over following a transitional period to “enable government-dependent families to adjust to the free market.” This approach has the virtues of simplicity and speed, but also the complication of requiring widespread recognition of the propriety of a fully private educational system—a recognition that may not exist in America for quite some time.

Another possibility is to begin the transition from the status quo to a fully free market by providing Americans with a choice in how and where to apply their education dollars. This possibility has the virtue of being feasible today, as there is already substantial support for it in the burgeoning “school choice” movement. The difficulty with this approach lies in developing and implementing a school choice program that moves American education toward a free market rather than extends the arm of government further into education.

Within the school choice movement, there are essentially two schools of thought regarding the best mechanism for enabling parents to choose where to spend their education dollars. One camp advocates government-issued, tax-funded school vouchers; the other advocates education tax credits. The vouchers camp is far more popular and is already making political headway, while the tax credit camp is relatively small and has yet to develop a viable program. This is unfortunate because, as we shall see, the implementation of a school voucher program would be a disaster for American education long term, whereas the implementation of a proper tax credit program would put America squarely on the road to a fully free market in education.

School Vouchers

In a typical school voucher program, a government agency issues to parents (or guardians) education allowances that come from tax revenues. The parents then enroll their child in the school of their choice, using the voucher as partial or full payment toward the yearly tuition. For example, if Jane and John Doe receive a voucher for $5,000 and enroll their child in a school with a tuition of $7,000, they give the school the voucher plus $2,000 out of pocket. The school then presents the voucher to the issuing government agency and redeems the tuition balance of $5,000. Details aside, the essential element of a voucher program is that the government provides parents with vouchers for use at schools other than their child’s assigned government-run school, and the schools then redeem the vouchers for tax monies collected by the government.1

Milton Friedman first introduced this general idea in 1955 in his essay titled “The Role of Government in Education.” In this paper, Friedman endorsed a system of universal, tax-supported education vouchers for elementary and secondary schooling (K–12). Under Friedman’s plan,

Government, preferably local governmental units, would give each child, through his parents, a specified sum to be used solely in paying for his general education; the parents would be free to spend this sum at a school of their own choice, provided it met certain minimum standards laid down by the appropriate governmental unit.

Although a voucher program would introduce some degree of “school choice,” it would, Friedman acknowledged, involve “the financing of education by the state” and would necessarily entail “the imposition [by the state] of a minimum required level of education.”2 Parents would be able to apply their government-issued vouchers toward tuition at private schools—but only so long as those schools conform to the government’s notion of an “appropriate” education.

Far from being a step in the direction of a free market in education, voucher programs extend the coercive arm of the government into private schools. . . .

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Acknowledgments: I would like to thank Craig Biddle and Alan Germani for their extensive contributions to the production of this article, without which the presentation would have been less clear and concise.

1 Milwaukee is home to a long-running example of this approach, which works as follows:

“From the perspective of the parents of students in the voucher program, the financing is fairly straightforward. The state issues four separate checks during a given school year (in September, November, February, and May) that are payable to the parent or guardian of a child enrolled for the entire school year in the voucher program at the same private school in Milwaukee. . . . The checks are sent to the school where the parent then endorses the check over to the school for ease of administration and to prevent possible fraud on the part of the parent.” [Charlie Toulmin, “Financing the Milwaukee School Voucher Program,” AllBusiness, date, p. 3.Accessed at]

2 Milton Friedman, “The Role of Government in Education,” 1955, Trustees of Rutgers College in New Jersey. Accessed at

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