The term tuition tax credits is popularly used to refer to various tax-based programs that funnel money to private schools. There are two main approaches: tuition tax credits and tuition tax deductions.
Under tax credits, an income tax bill is directly reduced. If you owe $4,000 in taxes for the year and you are eligible for a $500 tuition tax credit, you only have to pay $3,500 in taxes. In essence, the government has given you a gift of $500 to offset your private school tuition.
A tax deduction reduces the taxable income used to calculate how much you owe in taxes. Let's say your taxable income is $50,000 but you are eligible for a state's $1,000 tuition tax deduction. You would then pay taxes based on a taxable income of $49,000.
Fundamentally, tuition tax credits are a way to use public policy to increase the money going to private schools and to relieve the financial burden on middle- and upper-income families with children already in private schools. "Tuition tax credits are an offshoot of the voucher concept," notes Marc Egan, director of the Voucher Strategy Center for the National School Boards Association. "They are an attempt to drain critical dollars from public schools. While vouchers are a direct drain, tuition tax credits do the same, but through the tax code."
Even privatization supporters note the inherent link between vouchers and tuition tax credits. As Andy LeFevre, head of the education task force of the ultraconservative American Legislative Exchange Council puts it, with tuition tax credits "the end goal is the same as the voucher; it's just a different way to come about it."