The Texas Economy and School Choice

JANUARY 2015
The Texas Economy

and
School Choice
An analysis of the Taxpayer Savings Grant Program

commissioned by Texas Association of Business
and Texas Public Policy Foundation
LAFFER ASSOCIATES
Investment Research
AUTHOR | ARTHUR LAFFER

BOOK + COVER DESIGN | MICHAEL BARBA
PHOTOS COPYRIGHT | AMERICAN FEDERATION FOR CHILDREN
The Texas Economy

and
School Choice
An analysis of the Taxpayer Savings Grant program commissioned by
Texas Association of Business and Texas Public Policy Foundation
By Arthur Laffer
LAFFER ASSOCIATES
Investment Research
EXEC UTIVE S UM M A RY
The Texas Association of Business and the Texas
Public Policy Foundation jointly commissioned
Laffer Associates to perform an analysis of the
Taxpayer Savings Grant Program (TGSP), which is
a statewide universal school choice program under
active consideration by the Texas Legislature, in order
to ascertain the effect of such program on the states
economy. This report is the result of that evaluation.
The survey of the educational benefits of school choice
across the nation in this study shows that broad,
universal, statewide school choice can achieve similar
educational results for Texas. For instance, reducing
the 130,000 dropouts statewide by half is achievable by
statewide school choice. So is closing the educational
achievement gaps between the races, between students
from lower income and higher income families, and
between the U.S. and the higher achieving countries
in education performance. These results would be
further enhanced by educational innovation, in a
sector that has so far failed grossly to take advantage
of modern communication breakthroughs, which
can greatly increase productivity, education results
and achievement. The competitive market created by
broad, nearly universal, statewide school choice would
accelerate such badly lagging innovation.
Broad, universal, statewide school choice, as
envisioned in the TGSP, would substantially increase
economic growth in Texas first by increasing
residential and commercial property values, which
would, in turn, increase residential and commercial
development. More importantly, school choice would
raise wages and incomes by reducing dropout rates,
and increasing graduation rates, and educational
achievement, as measured by standardized test scores,
all of which would increase human capital, leading to
increased productivity and output.
Specifically, universal school choice as proposed by the
TSG program would increase Texas state GDP up to an
estimated 17% to 30% over twenty-five years, meaning
an additional roughly $260 billion to $460 billion for
the people of the state each year. The improvement in
standardized test scores that has already been shown
to develop from broad school choice reforms indicates
a present value net gain of future GDP increases for
The Texas Economy & School Choice
What impact would reform have?

x
Texas GDP &

standard of living
would increase
by 17% - 30%.
.30
That means
$260 - $460
billion more in
our economy.
AK
In other words,
Texas would add
the economies of
nine other states.
ME
VT
RI
MT
ID
WY
ND
SD
Texas alone of $4 trillion to $10 trillion. And the

increased economic growth in Texas would produce
between 560,000 and 985,000 new jobs. Such an
economic boom would draw population in-migration
to Texas from the rest of the country of between
650,000 and 1.1 million people.
The Economic Effect of Reducing

the Number of Dropouts
In the 5 largest
metro areas,
77,600 students
drop out each year.
El Paso
I N TR OD U CT ION
Under the Taxpayer Savings Grant Program, every
student who attended public school in the state for
the prior year, or who is entering school in Texas
for the first time, would be eligible for a Taxpayers
Savings Grant. The grant would be equal to tuition
at a private school of the students choice, subject to a
maximum of 60% of the average per-student cost for
maintenance and operations in public school. The
reform is estimated to save the state billions, while
substantially improving education performance, results
and achievement for students in the public schools
(through documented effects of competition), as well
as for the students who exercise school choice.
Austin
Houston
San Antonio
If the TSG cut this in half, the new graduates would...

...buy homes
worth almost
$750 million.
SOLD
...pay $4.6 million

more in state and
local taxes.
Laffer Associates has determined that by slashing

student dropout rates, raising graduation rates,
expanding education performance, results, and
achievement, and consequently growing human
capital, school choice reform would substantially
increase economic growth, producing waves of new
jobs and propelling up wages and income for working
people and their families in Texas.
yo u r
g o ve r n m e n t
...spend $351
million more as
consumers.
These benefits from education reform would increase

Texas state GDP by up to an estimated 17% to 30%
over twenty-five years, meaning an additional roughly
$260 billion to $460 billion for the people of the
state each year.1 That is the equivalent of adding to
Texas the entire state economies of 9 other states
Vermont, Wyoming, Montana, South Dakota, North
Statewide school choice resulting from the Taxpayer Savings

Grant program would increase
property values in Texas by 20
percent or more.
Dallas
...invest $127
million more.
...create 4,000
new jobs.
...and increase
Texas GDP by
$653 million
annually.
+$653
million
For more on these economic effects, see page 28.
Why Teachers Win

The average
salary of Texas
teachers is
$48,821.
Such increased economic growth in Texas would

produce between 560,000 and 985,000 new jobs.
Such an economic boom would draw population inmigration to Texas from the rest of the country of
between 650,000 and 1.1 million people.
But Total Spending per student

was $12,106 in
2012-13.
That means
Texas spends
$215-$325,000
per classroom.
Choice would
drive up wages as
schools divert
more funds to
classrooms where they have
the greatest effect
on students.
Dakota, Rhode Island, Maine, Alaska, and Idaho. The

improvement in standardized test scores that has
already been shown to develop from broad school
choice reforms indicates a present value net gain of
future GDP increases for Texas alone of $4 trillion to
$10 trillion.2
$215K+
Report of
Dr. Jacob Vigdor
Introducing
greater competition into the
market for
teachers will raise
teacher salaries.
As a result, teachers could choose what

kind of school to teach at
without sacrificing their financial health.
To produce such a massive increase in prosperity,

there are a number of contributing factors. All of this
results, however, because the improved educational
outcomes resulting from school choice increase the
human capital of the population. More human capital
increases production and output, which means more
economic growth. It also produces more jobs and
higher wages and incomes, resulting from increased
productivity, which further reflects higher economic
growth. The majority of these human capital gains
will result from improved performance of the Texas
public school system. Market dynamics will result in
meaningful school reform which the politically driven
system cannot achieve.
Moreover, reducing the 130,000 annual dropouts
statewide by half, which is achievable by statewide
school choice, would result in an additional 65,000
high school graduates each year. As part of the
increased GDP effects discussed above, those
graduates would earn an additional $800 million in
earnings every year, or individually an average of an
additional $10,000 a year. They would initially each
gain additional income of 23 percent a year when they
first graduate, growing to an income gain by age 40 of
54 percent a year.
These additional graduates would ultimately use their
higher incomes to buy bigger, better, newer homes
worth an additional $1.2 billion. They will spend
an additional $585 million each year, and invest an
additional $212 million. That increased economic
activity from these new graduates alone would create
an additional nearly 6,600 jobs, increasing GDP in the
state by an additional $1.1 billion a year.
Furthermore, based on the results from school choice
found in the academic literature discussed below

regarding improved test scores and increased property
values, we estimate that the statewide school choice
resulting from TSGP would increase property values in
Texas by 20 percent or more.
Due to all of these benefits, school choice programs
have proven to be powerful economic growth magnets.
The availability of school choice draws more young
families with children, and their working adults, to
districts, neighborhoods, and towns offering school
choice. That surge in local population drives up the
value of residential housing in the district, which
promotes more residential development. The resulting
surge in consumer demand from the new families
moving in promotes business expansion and creation,
and commercial development. This translates into

new shopping malls, grocery stores, drug stores,
restaurants, movie theaters, and other retail and
recreational outlets serving the booming local
population. This developing local economic boom
attracts more capital investment to the area, which
creates more jobs and raises wages.
Over the long run, the improved educational outcomes
resulting from school choice increase the human
capital of the population. While this is a dry, boring
economic term, the real life implications of the effects
of educational choice are anything but hum drum. This
paper demonstrates that school choice will provide
opportunities to hundreds of thousands of children
that they never dreamed were possible.
P A RT I : T HE T A X PA Y E RS SA VIN G S G RA N T PRO G R AM
The proposed Texas Taxpayers Savings Grant Program
provides for every school age child who attended
Texas public schools for the entire prior year, or who
is first entering a new school year in Texas, the choice
of an annually renewable Taxpayers Savings Grant
(TSG) equal to tuition paid for enrollment in a private
school of the parents choice. The grant is subject
to a maximum of 60% of the current average public
school expenditure per student for operations and
maintenance.3 That means the state saves money for

every student that chooses to use the grant to attend
private school, as the state then has to pay at most
only 60% of the marginal cost of the student attending
public school. The cost to the state could even be
lower than 60% of the average public school cost per
student if the tuition in the private school in which the
student has enrolled is less, which it would be for many
private schools in Texas, especially parochial, schools.
Long-Term Impact
The TSGP consequently provides for broad, universal
school choice for every student residing in Texas.
Parents and their children are free to choose among
every private school, and every public school open
to their enrollment, in the state. They are also free to
choose to supplement the grant with their own funds
if they choose a private school costing more than
the maximum grant amount. Several studies have
evaluated the TSGP; well examine them below.
EVALUATING THE TSGP
The Texas Education Agency (TEA), the state agency
overseeing primary and secondary education,
estimates that the Foundation School Program
portion of public school operations and maintenance
expenditure per student currently averages $7,500.4 At
this level of funding, the maximum grant per student
(60% of $7,500) would currently be $4,500 per year,
resulting in a savings to the state of approximately
$3,000 for each public school student that chooses to
use the TSG program to attend private school.
TEA estimates the available private school capacity in
Texas over the past year at 78,870 additional students.5
That many students switching to private school would
save the state nearly a quarter billion dollars ($236
million) under the TSGP over the first year alone.
TEA projects private school capacity increasing 20% a
year through FY 2018, with 163,296 students then able
to participate in TSGP.6 That many students exercising
the school choice grants would save the state nearly
half a billion dollars ($490 million) per year.
TEA projects that over the 5 year period, 2014 to 2018,
TSGP could save taxpayers a gross sum of $1.758
billion.7 Total costs over that period to administer
the program would be $758,690, for expenses such
as an IT contract to build and maintain a website for
the grant program, wages and benefits for employee
personnel, and office space, furniture, and equipment.
According to TEA estimates, that would leave a net
savings to the state over that five-year period of $1.757
billion.
Another examination of the TSGP was made by, the
Legislative Budget Board (LBB), a permanent joint
committee of the Texas Legislature. In a Fiscal Note
dated May 18, 2013, the LBB reported that the average
$4 - $10
trillion
The TSGs long-term impact will add

$4 - $10 trillion in present value GDP
to our states economy.
per student public school expenditure for operations

and maintenance was $8,276 for FY 2012 based on the
actual, audited, financial data submitted to the Public
Education Information Management System (PEIMS).8
The maximum grant would consequently be $4,966 (60
percent times $8,276). The LBB determined that under
the TGSP the state would save $2,500the difference
between the average FSP entitlement of $7,500 and the
reimbursement amountfor each student in average
daily attendance who left the public school system and
attended a private school.9
The Legislative Budget Board assumed that in the first
year of the program, one half of one percent of eligible
public school students would choose to use the TSG
to attend private school, rising to one percent in the
second year, and by an additional percentage point for
each successive year of students after that. The Board
consequently estimated taxpayer savings of $91.4
million in the first biennium, rising to $476.2 million
by the fifth year of the reform, and $1.1 billion in
cumulative savings over 5 years.10
Another review of the TSGP was conducted by John
Merrifield and Joseph L. Bast, in their paper, Budget
Impact of the Texas Taxpayers Savings Grant Program.
Based on official state data, Merrifield and Bast
estimated per-student operations and maintenance
spending in Texas of $8,572.11 They consequently
estimate the maximum TSGP grant to be $5,143,
resulting in savings for the state of Texas of at least
$3,429 for every student choosing to use the grant to
attend private school.12
The study shows that the maximum TSGP grant would
be more than enough to cover the average tuition
at parochial elementary schools in Texas.13 About
two-thirds of students in Texas attending private
elementary schools attend such religiously affiliated
schools,14 which are particularly popular among the
Hispanic population.
Based on academic research regarding demand for
private schools,15 Merrifield and Bast estimate that
under the TSGP, 6% of public school students would
choose private schools over public schools in the first
two years.16 That would result in taxpayer savings of at
least $2.01 billion.17 Based on the experience with the
school choice program in the Edgewood school district
in San Antonio, Merrifield and Bast alternatively
According to the TEA, the Taxpayer Savings Grant would

save $1.76 billion over 5 years.
Taxpayer Savings Grant

FAQ
What is the Taxpayer Savings Grant?
It is a school choice program administered
by the Comptroller of Public Accounts.
Who exactly would qualify?
School-age children who:
(1) are entering kindergarten or 1st grade, or
(2) attended a public school for all of the year
preceding initial participation, or
(3) are prior participants in the program.
How much money would the Grant provide?
An amount that is the lesser of:
(1) the tuition paid, or
(2) 60 percent of the state average Maintenance
and Operations spending per student. ($5,143)
Has this been tried in other states?
Yes and no. There are 22 other grant programs in the United States, but each is tailored
to a specific group of students. The TSG would
give choice to a much wider group of students.
Do Texans support school choice?
87%
84%
80%
2014: 87% of
2012: 84% of
2014: 80% of
Texans say school Republican voters Texas Hispanics
choice would
statewide support support the TSG.
reduce poverty.
the TSG.
The Texas Economy
& School Choice
estimate that 6.8% of Texas public school students

would choose private schools over public schools in
the first two years,18 resulting in a savings to taxpayers
of at least $2.18 billion.19 If Texas parents exercise
the school choice grants at the same rate as parents
did under the school choice program in Milwaukee,
Merrifield and Bast alternatively estimate that 7.6%
of Texas public school students would choose private
schools over the first two years,20 saving Texas
taxpayers at least $2.3 billion.21
Merrifield and Bast argue that the savings to taxpayers
from the grants would likely be substantially higher
because their analysis did not consider that many,
if not most, students would be getting less than the
maximum grant amount, as tuition for the private
school they have chosen would be less than the
maximum grant. Two-thirds of private elementary

school students in Texas attend parochial schools,
where the average tuition is about 22% less than the
maximum grant amount. So the savings to taxpayers
would be 22% more than estimated above for students
that choose to attend those private schools.22
Moreover, Merrifield and Bast indicate the actual
savings to taxpayers would likely be at least 35% more
than the estimated savings based on public school costs
for operations and maintenance alone, more accurately
reflecting the total costs of attending public schools.23
In addition, the estimated net taxpayer savings do not
consider the revenue increases that would result from
increased economic growth due to the statewide school
choice program.
Enrollment Growth in
Private School Choice Programs
308,560
245,854
158,725
81,524
90,613 96,528
108,705
182,608
171,478
210,524
190,811
126,519
55,373
29,003
2000-01
2005-06
2010-11
2013-14
Enrollment in private school choice programs nationwide is increasing. In Texas, demand for choice in the
form of public charter schools has resulted in waiting lists over 100,000 students long. An estimated 0.5% 6% of public school students would enroll in the TSG within the first two years of the programs creation,
allowing another 25,000-300,000 students to enroll in the school of their choice.
source: American Federation for Children
P A RT I I : CHOICE LEADS TO A C H IE VE M E N T
The economic theory is clearthe increased choice
and competition associated with school choice
propels improved educational outcomes. The research
literature bears this out time and again. Table 1 below
summarizes the documented positive educational
improvements associated with school choice programs.
HIGHER TEST SCORES WITH CHOICE
Published, academic, school choice studies consistently
show that students who are empowered to choose
schools they prefer gain in educational achievement
as measured by standardized tests and other critical
measures.
Jay Greene points out that several of these studies
involved school choice programs where there were
far more applicants than school choice scholarships
available.24 As a result, the students who received one
of the available school choice scholarships were chosen
by lottery. Greene explains that, due to this lottery
assignment methodology, the research on school
choice includes several random-assignment studies,
the gold standard of research design, where subjects
are randomly assigned to treatment and control
groups as in a medical study.25 The control group was

randomly assigned as well, as they were those who lost
the lottery for the available school choice scholarships.
Through this means, there have been at least seven
studies involving random-assignment school choice
experiments, covering five different programs
in different cities, conducted by several different
researchers.26 Green summarizes, Every one of
those analyses finds statistically significant benefits
from school choice for those who are provided with
opportunities to choose a private school.27
Harvard
The Harvard Program on Education Policy and

Governance (PEPG) reported on the results from the
The maximum TSGP grant

would cover most of the
average tuition at private
schools in Texas.
Table 1: Educational Improvements Documented as a Result of School Choice

Author
Choice Program
Location(s)
New York, NY;

William Howell, Harvard
Washington
Program on Education Policy &
DC; Dayton,
Governance
OH
Greene, Peterson, & Du,
published book
Milwaukee, WI
Cecilia Rouse, Quarterly Journal

Milwaukee, WI
of Economics
Greene, Howell, & Peterson,
published book
Howell & Peterson, Brookings
Institution
Kim Metcalfe, Indiana
University
Charlotte, NC
Dayton, OH
Cleveland, OH
Paul Peterson, Harvard Program

Cleveland, OH
on Education Policy &
Governance
JW Diamond, Texas Public
Policy Foundation
San Antonio,
TX
Test Score
Improvements
Standard
Deviation
Gains
6.3 national
percentile points
0.33 s.d.
1.0 s.d.
Math: 11 percentile
points
0.5 s.d.
Reading: 6
percentile points
0.25 s.d.
Math: 68
percentile points
Math: 6.5
percentile points
Reading: 5.9
percentile points
6.5 percentile
points
Reading: up 12.5%
Science: up 11%
New York, NY
0.5 s.d.
Math: 15.6
percentile points
Reading: 7.5
percentile points
Hispanic: 18.2
percentile points
Reading: up 2%
Shapiro & Hassett, The

Heartland Institute
Graduation Rates
Math: up 4%
0.75 s.d. Hispanic: Up 50%

Total: Up 11.4
percentage points
Blacks: Up 12.1
percentage points
Hispanics: Up 12.6
percentage points
privately funded school choice programs in New York

City, Washington, D.C., and Dayton, Ohio. Their
report found, In the three cities taken together, the
average, overall test-score performance of AfricanAmerican students who switched from public to
private schools was, after one year, 3.3 NPR (national
percentile ranking) points higher, and after two years,
6.3 NPR points higher than the performance of the
control group remaining in public schools.28 The
Harvard researchers put these results in context,
A difference of 6.3 NPR points in overall test
performance is 0.33 standard deviations, generally
thought to be a moderately large effect. Nationwide,
differences between black and white test scores are,
on average, approximately one standard deviation.
The school voucher intervention, after two years,
erases, on average, about one-third of that difference.
If the trend line observed over the first two years
continues in subsequent years, the black-white test
gap could be eliminated in subsequent years of
education for black students who use a voucher to
switch from public to private school.29
The same analysis would apply to the similar gap
between Hispanic and white test scores, which
also would be eliminated over time through broad,
universal, school choice.
Greene, Peterson, and Du
Another randomized study of the publicly funded

school choice program in Milwaukee found that
students who won the lottery to receive a school choice
scholarship gained 11 points on standardized math
tests and 6 points on standardized reading tests, 3 to 4
years after exercising their school choice, as compared
to the control group composed of students who lost
the school choice lottery.30 This is equivalent to one
half of a standard deviation in math and one-quarter of
a standard deviation in reading. That gain would apply
to all students, not only blacks and Hispanics.
Quarterly Journal of Economics
Princeton economist Cecilia Rouse, who formerly

served on President Clintons Council of Economic
Advisors, conducted another study of the Milwaukee
Every random-assignment
analysis finds significant
benefits from school choice
for those who are allowed to
choose a private school.
school choice program and found standardized
test score gains of 6 to 8 percentage points in math
after four years of participating in school choice.31
Moreover, Rouse reports that the students applying
for the school choice scholarships were considerably
more disadvantaged than the average student in the
Milwaukee public schools.32 Their average family
income was only about $12,300, about half the average
in Milwaukee public schools. They were more likely
to be minority and had lower math and reading scores
than the average student in the Milwaukee public
schools.33
Greene, Howell, & Peterson
Another random assignment study involved the

privately funded school choice program in Charlotte.
It found as well that students who won the lottery
to receive a school choice scholarship gained 6.5
percentage points on standardized tests in math and
5.9 percentage points in reading, after one year, as
compared to the control group who lost the school
choice lottery.34 More than three-fourths of the choice
students in the Charlotte program were AfricanAmerican.35 A study of the school choice program in
Dayton, Ohio found that African-American students
gained 6.5 percentage points on standardized tests after
two years.36
Indiana University
The studies regarding the publicly funded school

choice program in Cleveland did not involve
random assignments, so they were not as rigorous.
Nevertheless, one study found that students with
school choice scholarships scored 12.5% higher
on standardized tests involving language skills and
11% higher on standardized tests involving science,
compared to public school students with no choice
10
scholarships.37 In other words, reading skills for all

students exercising choice improved by roughly one
half standard deviation as well. Another study found
that students who had exercised school choice to
attend private schools gained 15.6 percentile points
in math, and 7.5 percentile points in reading over two
years, compared to their scores when they entered the
private schools.38 The authors noted that the school
choice students in Cleveland were among the most
disadvantaged students in the city.39 They concluded
that the demographic realities made the test score
gains particularly impressive because nationwide over
time inner-city students tend to have declining test
scores relative to national norms.40
Texas Public Policy Foundation &
The Heartland Institute
Private sources funded a school choice program, the

Edgewood Voucher Program (EVP) for the Edgewood
School District (EISD) in San Antonio, Texas from
1998 to 2008. This successful experiment provided
a wealth of data and experience demonstrating the
success of the concept of school choice.
The EVP was a universal school choice program, which
means that it applied to all students in the Edgewood
School District, not limited only to lower income or
troubled schools or students. Moreover, the school
choice scholarships could be used at any private or
public school that would accept the scholarship funds
in partial or full payment of required tuition and costs.
School choice scholarship use peaked at nearly 12.8%
of all EISD students in 2003-2004.41
Just as with the Milwaukee and Cleveland school
choice programs, those who used EVP scholarships
to transfer to private schools experienced academic
gains.42 Moreover, as Diamond states, students who
participate in [school choice] programs are more likely
to graduate and go to college; this is especially true
for low-income students and minorities.43 Indeed,
the three private schools in San Antonio with grades
9-12 that educated most of the school choice users
maintained graduation rates and college education
rates near 100%.44 Diamond confirms that 91% of
Edgewood school choice students graduating in 2005,
and 93% of those graduating in 2006, went on to
college.45 Yet, only 60% of Edgewood students overall
11
even took college admissions tests in 1999.46

Diamond adds that the vast majority of these college
bound students were Hispanic, with average family
incomes less than $25,000, 22 percent less than the
average Edgewood family income.47 Statewide, only
62% of Hispanic high school seniors were college
bound in 2002.48
Conclusion
Greene concludes, [T]he U.S. Department of

Education estimates that 59 percent of students
currently attend chosen schools. But many of the
remaining 41 percent lack the financial resources to
move to a desired public district or pay private school
tuition.49 The Texas TSG school choice reforms would
merely extend to everyone the same freedom of choice
in education now reserved primarily for the more welloff.
HOW COMPETITION AFFECTS
PUBLIC SCHOOLS
Public Schools, the defenders of status quo government
monopolization in education, argue that allowing
freedom of school choice to all would only cream the
best students from the public schools, draining talent
and resources from the public system.50 But it can
rightly be asked, isnt that what happens under the
current, failing, restrictive system, with the affluent,
and more gifted and higher achieving, fleeing the
lowest common denominator public schools to the
more elite private or public schools serving the more
prosperous?
Milwaukee
Moreover, experience shows that it is primarily low

income parents of students suffering the most difficulty
and trouble in current public schools who are the
most interested in school choice that would liberate
them to choose better opportunities. Greene recounts:
The average income of families participating in the
Milwaukee program was $10,860. In Cleveland,
the mean family income was $18,750; in New York,
$10,540; in Washington, D.C., $17,774; and in Dayton,
School choice would

unambiguously improve
education performance and
achievement for all students,
not just those who exercise
school choice to leave their
currently assigned public
school.
$17,681. In Milwaukee, 76 percent of choice students
were from single, female headed households. In
Cleveland, the figure was 70 percent. In Washington it
was 77 percent, and in Dayton it was 76 percent. The
standardized test scores of choice students before they
began private school averaged below the 31st percentile
in Milwaukee, below the 27th percentile in New York,
below the 33rd percentile in D.C., and below the 26th
percentile in Dayton. In other words, choice students
were generally performing in the bottom third
academically.51
Another argument against school choice raised by
defenders of the status quo is that they are interested
in reforms that can benefit all students, not just
those who choose to leave the public schools by
using school choice scholarships. But based on
fundamental principles of economics, school choice
would unambiguously improve education performance
and achievement for all students, not just those
who exercise school choice to leave their currently
assigned public school. That is because school choice
introduces competition to the public schools. An
exodus of students from a public school brings the
loss of some public funds, which generally follow the
student.52 But students fleeing a particular school
is also a professional embarrassment for the school.
Consequently, public schools coming under such
competitive threat would be expected to focus on
improving their education performance and increase
education results and achievement for students.
And real world experience with school choice confirms
precisely those results. For example, in response to
the Milwaukee school choice program, the Milwaukee
public schools introduced broader freedom of choice

for students within the public school system. They also
guaranteed parents that students would be reading at
grade level by at least the third grade, or the student
would receive individual tutoring. That guarantee was
proclaimed very publicly, with extensive advertising to
promote it, on billboards, and the sides of buses.
Florida
Similarly, under the A-Plus school choice program

in Florida, the public schools guaranteed students
that if their school received two failing grades from
the state, the school would offer students a voucher
to help finance a switch to a public or private school
of the students choice. Greene reports that the test
score gains of schools facing the imminent prospect
of vouchers were more than twice as large as the gains
realized by the other schools. When Florida schools
had to compete to retain their students under a choice
system, they made substantial progress.53
San Antonio
In San Antonio, the effect of competition shows up in

the Edgewood school district test scores. Edgewood
is predominantly Hispanic, with only 1% white
students. Economically disadvantaged students
comprise 94% of the Edgewood student body. Even
though those demographics indicate Edgewood has a
school population more challenging to educate than
the control districts, Merrifield et al. found that from
1998 to 2004, when the school choice effects were
most powerful, the number of Edgewood students
passing state standardized tests increased by 38%.54
The passage rate for the second highest control district
was only 22%. The average increase for all the control
districts was only 9.6%. Greene and Forster similarly
found that Edgewood test score improvements ranked
in the 85th percentile compared to control districts
rated across the entire state.55
Diamond further analyzed these state standardized
test scores and found that, during the first 5 years of
the school choice program, when the competitive
effects were most powerful because the program was
not limited and subject to being phased out, the gap in
passage rates between Edgewood and the rest of the
12
13
Coreana Carson (standing, second row, second from left) is the third child in her family
to use a private school grant in Milwaukee.
In 2014, she graduated validictorian and
enrolled at Marquette University.
What happened
in Edgewood
ISD?
Edgewood ISD is:
92%
97%
Economically
Disadvantaged
Hispanic
Before it was ended, the choice program

began to close the achievement gap on
tests...
80%
Standardized
Test Passing
Rates
State
Average
60%
FAQ
Why was school choice established in
Edgewood?
The Childrens Educational Opportunity
Foundation wanted to open private
school options to public school students.
Who qualified for the choice program?
40%
20%
Edgewood ISD is a
school district in
Southwest San
Antonio.
Edgewood ISD
Program
Began
0%
1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02
...and the gap in graduation rates:
To qualify, students had to reside in EISD

boundaries and meet the income test for
the federal free/reduced price lunch.
How much money did the grant give?

Up to $3,600 for grades Pre K - 8 and
$4,000 for grades 9 - 12.
100%
90%
Graduation
Rates
80%
70%
60%
50%
How many students enrolled in the

program?
State Average
State Hispanic
Edgewood ISD
Class of 99
Class of 00
Class of 01
Class of 02
Class of 03
Class of 04
Class of 05
At its height in 2003-04, enrollment was

2,144 students, or 16 percent of all EISD
students.
14
states Hispanic population was virtually eliminated.

Moreover, the gap between Edgewood, with its
overwhelmingly Hispanic student population, and
the entire rest of the state was reduced from 23.7
percentage points in 1994 to 5.5 in 2002, a reduction
of over 80 percent.56
In addition, as Diamond states, increased
competition from school [choice] will tend to increase
graduation rates in the public school system.57
Diamond reports that from 1999 to 2005, the
graduation rate for all Edgewood students increased
by 25%.58 Yet, the graduation rate for all state students
increased by only 5.7%, less than one-fourth as much.
These graduation and college attendance rates
are especially significant given that the student
population of the Edgewood school district was 97.3%
Hispanic, virtually 100%, with 92.1% economically
disadvantaged.59 Statewide, again only 62 percent
of Hispanic high school seniors were college bound
in 2002.60 This data indicates a sharp decline
in Edgewood in dropout rates prevalent among
minorities. Only 31% of Edgewood students were
graduating before the school choice program.61
Other actions by Edgewood demonstrated
competitive responses to the school choice threat.
They tried their own school choice counter-offensive
by allowing students from outside the Edgewood
district to choose to attend any of the districts
schools.62 They also allowed their employees to
choose to enroll their own children in the Edgewood
school where the employee worked.63 Edgewood
also financed a management study by MGT of
America64 of how their schools could become more
competitively appealing in response to the school
choice threat, and rapidly began implementing the
studys recommendations.65 Whether or not these
actions were effective, they show how the competitive
threat of school choice can move public schools
to take action to improve their performance and
competitive appeal.
New York City
Shapiro and Hassett reported on the effect of school

choice reforms under Mayor Bloomberg in New York
City. Bloombergs reforms granted more discretion
and control to local schools and principals and more
15
The gap in passing rates

between Edgewood and the
rest of the states Hispanic
population was virturally
eliminated.
funding in return for more accountability for results,
creating a form of competition. The increased funding
involved 41 percent increases in average teacher
compensation and additional annual spending of nearly
$5,000 per student. The reforms also involved closing
160 poorly performing schools, and opening 660 new
ones. Bloomberg also increased charter schools from
1,800 students in 16 charter schools in 2002, to 30,000
students in 98 charter schools by 2009, to 60,000
students in 180 charter schools by 2013.
Bloombergs reforms also implemented school choice
freeing public school students citywide to choose
among a broad range of schools throughout the city,
from comprehensive high schools to small theme
based schools, and from charter schools and college
preparatory schools to vocational schools. By 2008,
incoming high school freshmen could choose from
more than 700 schools, based on the proposition that
different students prosper at different kinds of schools.66
Shapiro and Hassett report that from 2006 to 2012 the
average score of New York City students on the state
English Language Arts (ELA) test rose 2 percent, twice
as fast as the 1 percent gain across New York state.67 The
greatest increases were among the most disadvantaged
students in the Bronx and Brooklyn. By 2013, ELA
scores in four of the Citys five boroughs were on par
with the state average.68
Over the same period, the average score for New York
City students on the state mathematics test rose 4
percent, compared to 3 percent gains for students at
all New York state public schools.69 The gains again
were the greatest among the most disadvantaged in the
Bronx, followed by those in Brooklyn. Shapiro and
Hassett write, By 2013, the actual gap between the
averages for NYC students and students statewide was
close to zero.70
Moreover, from 2006 to 2012, the graduation rate for
New York City public schools rose from 49.1 percent to
60.4 percent.71 The gains were again the greatest for

African-American students, rising from 42.9 percent
to 55 percent, and for Hispanic students, rising from
40.1 percent to 52.7 percent.72 In addition, the passage
rates for New York City public high school students on
statewide Regents exams rose from 34 percent in 2006
to 58 percent by 2012.73
Choice Works in Other States
Finally, among students who began ninth grade from

2007 to 2012, the percentage enrolling in college rose
from 40.5 percent to 46.4 percent.74
Green and Winters found that schools subject to
school choice competition in Florida achieved higher
math scores than public schools not subject to such
competition.75 Hoxby found the same for school
choice in Milwaukee.76 She found as well higher test
scores from public schools in Arizona and Michigan
subject to competition from charter schools, than in
public schools not subject to charter competition.77
Hanushek and Rivkin find that public schools subject
to greater competition exhibit increased teacher
quality and other indicators of increased school
quality.78 Gottlieb found in a study published by the
Milton and Rose D. Friedman Foundation that greater
competition from private schools increases graduation
rates in public schools.79 Similar beneficial effects of
competition on public schools were found by Belfield
and Levin (2002)80, West and Peterson (2006)81, and
Chakrabarti (2004)82.
Hoxby sought to demonstrate the point by showing
how other forms of competition can lead public
schools to act to try to better serve students and their
families.83 She examined the effect of metropolitan
areas that have more school competition by having
more private schools that students and parents can
choose from as an alternative to the public schools, or
by having more school districts of more modest size
that families can choose from by moving their housing
to the geographic areas served by those districts. She
found that metropolitan areas with more competition
from these sources achieved higher academic
performance at lower cost than metropolitan areas
with less competition.
Hoxby reports that a one standard deviation increase
in private school choices in a metro area increases

public school test scores by 8 percentage points.84
That increases wages by 12 percent for public school
students when they enter the work force.85 Indeed,
Hoxby concludes, If private school students in an area
receive sufficient resources to subsidize each student
by $1,000, the achievement of public school students
rises.86 Such subsidies increase competition faced by
public schools by lowering the effective price of private
schools. Hoxby finds that these results are achieved
with no significant increase in per capita public school
expenditures.87
Hoxby also finds that a one standard deviation increase
in the available public school district choices increases
public school test scores by 3 percentage points.88 That
increases wages by 4 percent for public school students
when they enter the work force.89 Hoxby finds that
these results were achieved while per capita public
school expenditures declined by 17 percent.90
Greene found similar results through his development
of an Education Freedom Index for the Manhattan
Institute.91 That Index ranked the extent of education
choices available to families in each state, including
private school choices, charter school choices,
homeschooling choices, and public school choices.
He found that states that offered more school choices
had significantly higher student test scores. Greene
explains that this results from greater competition
among schools, writing, When parents have more
choices, schools pay greater attention to the needs of
students because families may withdraw their children
and the accompanying resources.92
LIBERATING THE SUPPLY SIDE OF
EDUCATION: TEACHERS WIN
For school choice to produce maximum benefits,
the barriers to entry of new school competitors must
When parents have choices,

schools pay greater attention
to student needs because
families can withdraw their
children and the accompanying
resources.
16
be minimized as well. That would maximize the

beneficial effects of market competition, and give
parents and students more real choices. As Paul Hill
writes,
Clearly, the ultimate outcomes of any choice
program depend on both demand for schools and
supply of options.If there are strict limits on
supply (for example, if parents are allowed to choose
only among schools run by existing public school
systems and if those systems are unable to change
the mix of schools they offer), demand will have little
room to operate.93
He adds,
Careful regulation of the demand-side will not make
school choice truly equitable and universal and will
not provide widespread access to good schools.
Those results depend on the supply side, that is on
the success of arrangements that provide the creation
of a wide variety of school options, expose all schools
to performance pressure through competition, and
permit constant replacement of weak schools by
promising new ones.94
Minimizing barriers to entry means minimizing the
costly regulatory burdens imposed on new entrants,
and the restrictions and requirements carried over
from public schools not working well as a result, to
the new entrants competing for parent and student
choice. Such costly counterproductive regulations
should not apply to those new entrants because
decentralized market competition and choice are doing
the job to protect students and parents, rather than
central planning regulation. Indeed, the new entrants,
and competition and choice they represent, could on
these same grounds displace much if not most of the
regulatory burdens, restrictions and requirements
on the public schools as well, reducing costs and
expanding education liberation throughout the entire
education system.
Moreover, minimizing or reducing barriers to entry
means some private or public backers of the new
entrants need to focus on access to and necessary
financing for the physical spaces and buildings for
the new schools, which can be a prohibitive barrier
to entry. Though as discussed below, rising new
technologies and innovations are already reducing or
17
even eliminating that barrier altogether.

Local business interests, Chambers of Commerce,
churches, community groups, social organizations
and clubs, even local as well as state government,
should embrace such education liberation, by joining
together to sponsor new school entrants. New
competition is the best way to help public schools,
not rigidly and reflexively promoting education
monopoly and continuing to throw good money after
bad.95 Staunchly advocating the concentrated power
of government education monopoly is not socially
progressive. Minorities and the socially disadvantaged
currently suffering education achievement gaps have
the most to gain from educational liberation, and they
increasingly recognize that.
Such liberation of the supply side of education as
well as the demand side would lead to revolutionary
diversity in education, with increasing schooling
specialization and variety resulting from the new
entrants, and maybe through their competitive effects
from the renewed and reinvigorated public schools as
well. Some schools and institutions would specialize
in assisting and better educating weaker students that
are falling behind, ultimately greatly slashing dropout
rates. Others would specialize in different subject
areas, such as science, the arts, music, technology,
literature, history, business, engineering, athletics, even
economics, maximizing appeal and effectiveness in
education to the broadest spectrum of students.
This new diversity in education would include differing
education methodologies and philosophies, and
sweeping innovation, particularly made possible by
modern communication technologies. Students and
parents volunteering to participate in such education
trailblazing would ultimately determine for themselves
in decentralized markets what works and what doesnt.
The new choice, freedom, and opportunities
Implementing a decentralized
market in education would
free diverse students to match
up with schools that best meet
their needs and preferences.
made possible by such reforms would create powerful,

revolutionary, market incentives for such pathbreaking innovation.
Implementing a decentralized market in education
would free diverse students to match up with schools
and institutions that best suit their individual
needs and preferences. That would involve a whole
additional vector of improved educational results
and achievement, as students would do much better
matching up with schools that better-suit their
individual, differing needs and preferences, and the
appeal of these diverse opportunities would further
slash dropout rates.
Particularly intriguing is how educators, parents and
students would innovate with new communication
and Internet technologies, quite possibly reinventing
education. Newt Gingrich writes in his 2013 book
Breakout:
We are on the edge of a dramatic transformation
from bureaucratic education to individualized
learning. The technologies of communications,
information, and learning are evolving so rapidly
that they could soon overpower the prison guards
of the past, who have been fighting desperately to
sustain the education bureaucracy even as it fails to
serve our childrens and our countrys needs.96
The Internet allows videos of lectures by top teachers
with first-rate subject matter expertise and/or
instructional abilities to be stored and accessed by
students anywherenationwide and even worldwide.
Those video lectures can then be accessed and
viewed by students individually anytime on their
own schedule, and at their own, individualized pace,
and reviewed as many times as necessary for any
individual student to understand the material.
Hedge fund analyst Salman Khan developed an
entire K-12 curriculum in his spare time, resulting in
thousands of videos available to students participating
in his Khan Academy working individually at
their own pace. He included exercise modules for
each video, which effectively served as tests of the
material taught in the video. As Gingrich explains,
Instead of testing once and moving on regardless of
the results, as traditional schools have done, Khan
Academy could ensure that each student mastered
the important skills before trying to build on them.

Once a student got ten questions in a row correct,
the academy promoted them to the next lesson.97
This innovation added to the ability of each student
to proceed at his or her own individualized pace,
and improved the effectiveness of the education,
consequently increasing student achievement.
Such innovation can be expanded to enable top
professors at the most elite universities around the
world to grow their reach worldwide, with students
globally able to access their top-flight lectures online
at their own pace, not just those admitted to the most
elite schools.
Such innovations have now graduated into
what Gingrich calls the virtual charter school
movement,98 including schools such as Floridas
Virtual Academies and Pennsylvanias Agora Cyber
Charter School. Students access these online schools
daily from home, where they engage in individualized
learning at their personal pace, starting with
instructional videos analogous to Khans. Those
videos are available any time of day, providing
students with the most flexible schedule and pace.
These virtual schools avoid the costs and pressures
of physical school buildings and campuses, and of
daily transportation to and from a physical location.
No more snow days. More than 100,000 students
nationwide are already attending such virtual schools,
most served by an online education specialty firm,
K12, that produces thousands of hours of high
quality content in the K-12 curriculum.99
School choice greatly advances the development
of such innovation and education reinvention by
liberating and empowering students and their
parents to choose new, innovative schools, and by
liberating the supply side to offer such innovation and
reinvention. This reinvention offers the prospect of
finally leading education out of the Dark Ages, with
its still monastic methodologies and organization.
All this new freedom of education would liberate
teachers as well to gain from decentralized, market
competition. Teachers would no longer work for a
monopoly employer. Rather, market competitors
bidding for their services would result in higher pay
and better working conditions. Good, appealing
18
teachers would be a prime factor competing schools

would have to attract students. Consequently,
schools seeking to attract students with the power
to choose in competitive markets would have full
market incentives to increase salaries and provide
better working conditions for teachers to attract and
retain the best and most appealing.
Bast, Walberg, and Behrend estimate that universal
school choice would result in average pay raises of
$12,000 a year or more for Houston teachers through
this competitive process.100 More resources would
be drawn from bureaucracy and overhead in service
of that goal. Bast, et al. report that less than half of
public education funds are spent in the classroom,
and the number of non-teaching personnel working
for the Texas public schools is almost equal to the
number of teachers.101 They write, Schools in a
competitive environment cannot afford to waste
money on bureaucracy and other things that dont
make their way to classrooms. Administrators have
a strong incentive to cut spending on bureaucracy
and consultants in order to compete for students and
the best teachers.102
Better working conditions would include
improved school discipline and security, increased
professionalism for teachers in choosing textbooks
and teaching materials, and greater individual
teacher control over teaching methods and
strategies.103 These are the reasons why private
school teachers consistently report higher levels of
satisfaction with their working conditions.104
Moreover, with broad, universal school choice for
students and parents, teachers would have far more
choices as well. They would be free to choose among
the new diversity of schools to pick the school that
is best suited to their skills and preferences. Some
would be drawn to and more skilled at serving
disadvantaged students who have long been falling
woefully behind and dropping out in high numbers.
Other teachers would do better to focus on the more
gifted and motivated students, helping them to
advance more rapidly and maximize achievement.
They could choose schools as well that best matched
their own subject matter expertise, and the teaching
methodologies and philosophy they prefer. The
overall result would be much better matching of
19
Professional pay and working

conditions mean teachers can
choose what kind of school to
teach at without sacrificing
their financial health.
teachers, students and parents, which would result in
teachers being most productive, and thus best able to
earn higher incomes.
The new freedom of education would offer teachers
new opportunities for innovative entrepreneurship
in starting new school ventures and offering
specialized teaching services. They could design and
market their own contributions to the reinvention
of education based on still grossly underutilized
modern technologies, as discussed above. This
opens up very substantial new earnings prospects for
teachers.
THE LAWSUIT FIX
On August 28, 2014, Travis County District
Court Judge John Dietz declared the Texas school
finance system unconstitutional under the Texas
Constitution. The Texas Constitution requires the
Texas Legislature to establish a public school system
that achieve[s] [a] general diffusion of knowledge
essential to the preservation of liberties and
rights of the people.105 In his decision, Judge Dietz
opined that the Legislature must structure, operate
and fund the public school system so that it can
accomplish its purpose for all Texas children.106
He also repeated the finding of the Texas Supreme
Court that the system must be financially efficient,
meaning Children who live in poor districts and
children who live in rich districts must be afforded
a substantially equal opportunity to have access
to educational funds.107 The Judge found that the
current education financing system failed in all of
these areas.
But the TSG program would improve education
and education financing in Texas to help meet all
of them. The Taxpayer Savings Grants provide
exactly equal opportunity for all. They help to move

education financing away from reliance on property
taxes and values, which is the root of the concern
behind such suits. Moreover, experience with
such school choice shows exactly the significantly
improved education results and the sharp reduction
or even elimination of racial gaps and disparities
in education that the Judge in the case is looking
for under the rubric of constitutionally mandated
efficiency. The TSG program consequently
advances precisely the diffusion of knowledge that
the Texas Constitution requires. Taxpayer Savings
Grants could consequently be a desirable resolution
of the lawsuit.
What does the Texas Constitution

require of public education?
Article 7, Section 1 sets up 4 tests for the public education
system in Texas:
Efficiency
Qualitative
Quantitative
Do schools
produce results
with little
waste?
Are students
provided
equitable funds?
Adequacy
Suitability
Do schools
accomplish a
general diffusion of knowledge?
Are schools
wellstructured,
operated, &
funded?
P A RT I I I : RES ULT S LE A D TO PRO SPE RITY

It should come as no surprise that the impressive
educational improvements associated with school
choice programs in turn lead to improved economic
performance. Table 2 summarizes these results.
McKinsey and Co. determines that closing the
educational achievement gaps between the races,

between students from lower income and higher
income families, between the states, and between the
U.S. and the higher achieving countries in education
performance, results and achievement would
ultimately increase U.S. GDP by 17% to 30% over
20
twenty-five years.108 The discussion in this study shows

that broad, universal, statewide school choice can
achieve those results for Texas.
That would mean increased GDP for the U.S. of $3.1
trillion to $5.5 trillion, or proportionally for Texas,
with state GDP currently close to $1.5 trillion, an
ultimate increase in state GDP of between $260
billion and $460 billion.109 That is the equivalent of
increasing the standard of living in Texas by 17% to
30%, or adding to Texas the entire state economies
of nine other statesVermont, Wyoming, Montana,
South Dakota, North Dakota, Rhode Island, Maine,
Alaska, and Idaho. Such increased economic growth
in Texas would produce between 560,000 and 985,000
new jobs.110 Such an economic boom would draw
population in-migration to Texas from the rest of
the country of between 650,000 and 1.1 million
people.111 Hanushek also calculates that a systemwide improvement in standardized test scores of 0.25
standard deviations indicates a present value gain
in future U.S. GDP of $44 trillion.112 A system-wide
improvement of 0.58 standardized deviations, which
would rank the U.S. equivalent to the worlds leaders
in education, indicates a present value gain in future
U.S. GDP of $112 trillion.113 The proportional share of
Texas in such gains would be the equivalent of adding
present wealth in Texas today of between $4 trillion
to $10 trillion114. The discussion in this study again
shows that such results can be achieved though broad,
universal, statewide school choice.
Hanushek further summarizes these results by

explaining they would be the equivalent of a long
term increase in the annual U.S., or in our case Texas,
economic growth rate of 1 percentage point. To
demonstrate the significance of this, at a long term rate
of real economic growth of 2%, which has more closely
represented recent years, GDP would double every 40
years. At a long-term real economic growth rate of
3%, which is close to the slightly higher growth rate of
the U.S. over most of the post World War II era, GDP
would more than triple every 40 years.
At a long-term real economic growth rate of 4%, GDP
would multiply by nearly 5 times over 40 years. That
would multiply again over the following 40 years by
another 5 times, leaving GDP 25 times higher after 80
years than it was at the outset. (During the periods
when the U.S. followed the most pro-growth policies,
the American economy did grow by 4% a year. So such
a sustained long term rate of growth is achievable). As
economic historian Brian Domitrovic observed in his
classic work, Econoclasts: The Rebels Who Sparked
the Supply Side Revolution and Restored American
Prosperity, The unique ability of the United States to
maintain a historic rate of economic growth over the
long term is what has rendered this nation the worlds
lone hyperpower.115 Likewise, the faster growth Texas
has achieved than the rest of the United States shows
that disparate state policies can lead to greatly varied
economic results across states.116
10 Year Projection
21
Job Creation
Population Increase
560,000 - 985,000
jobs created
650,000 - 1.1 million

domestic migrants
Table 2: Source Studies for Calculation of Improved Economic Outcomes Due to School Choice
Outcome of School Choice Discovered
Study Author
Laffer Associates
GDP & Economic Growth: Lower taxes

and spending from TSGP would increase
Texas GDP by between $3.6 billion and
$14.7 billion.
Jobs: TSGP would add 560,000 - 985,000

new jobs to the Texas economy.
Property Values would increase by 86.4%

on average. Single-family home values
Merrifield & Gray would increase by 95.4%; multifamily, by
Edgewood
209%; mobile homes, by 96.3%; industrial
property, by 227%.
Residential & Commercial Development:

Single-family home values increase by
7.4%; multifamily, by 25.1%; commercial,
by33%
Alliance for
Excellent
Education (2009)
Wages & Income: High School graduates

earn $6,322 more per year.
Tax Revenue: High School graduates pay

$1,709 more in taxes per year.
Alliance for
Excellent
Education (2010)
Wages & Income: Cutting Texas' Dropout Tax Revenues: Cutting Texas' dropout rate GDP & Economic Growth: Cutting Texas'
rate by 50% leads to $500 million more in by 50% leads to $46 million more in tax
dropout rate by 50% leads to $653 million
personal income annually.
revenue annually.
more in state GDP annually.
Shapiro, Hassett
Property Values: By increasing graduation

rates 1%, residential property values
increase 0.54%. A 1% increase in test scores
increases housing values 18%- 20%.
Hanushek
PV of GDP: Test scores increase by 0.25

GDP & Economic Growth: The TSG
s.d., PV of Texas state GDP up $4 trillion;
increases the long-term rate of economic
Test scores up 0.58 s.d., PV of Texas state
growth by one percentage point each year.
GDP up $10 trillion.
Wages & Income: H.S. diploma increases

wages by $10k; college degree by another
$21k/yr. Each additional year of education
boosts earnings by 11%
PV of GDP: Closing the 4 education gaps

increases U.S. GDP by 17%, or $3.1 - $5.5
McKinsey and Co.
trillion. Texas GDP increases by $260
billion to $460 billion.
Deming
Crime: School choice reduces a high-risk

student's crime rate by 50%, and the social
costs of high- and middle-school student
crimes by 35% and 63%, respectively.
22
Studies show that reducing

dropout rates, as school
competition does dramatically,
is powerfully pro-growth,
resulting in higher wages and
incomes for a lifetime.
INCREASED PROPERTY VALUES
AND DEVELOPMENT
The deterioration of central city schools was one
major contributing factor to migration of the middle
class from central city and inner city neighborhoods
to new suburban developments. But emerging
literature has already begun to discuss school reform
as a promising avenue for urban redevelopment and
revival. With school choice, families would be free
to begin to return to the cities with the choice of a
wide range of options for education of their children,
and with competition reviving the public schools.
Broad-based, universal school choice policies would
appeal to young and growing families to locate to
the liberated areas. The resulting new demand for
housing would drive up home values, which would
promote more residential development. That in turn
would result in surging consumer demand from the
new families moving in, which promotes business
expansion and creation, increasing commercial
development. This translates into new shopping
malls, grocery stores, drug stores, restaurants,
movie theaters, and other retail and recreational
outlets serving the booming local population. This
developing local economic boom would attract more
capital investment to the area, which creates more
jobs and raises wages.
The new relocating families would also be a source
of a new labor supply of adults seeking employment.
That surge in new population, development and
workers would mean new tax revenues that could
lead to pro-growth tax cuts, further promoting
economic development and growth. Those new
revenues can also be a source of more local funding
for education, and higher teacher salaries.
23
This pro-growth process would work even more

powerfully with a broad, universal, statewide school
choice program, especially in a pro-growth state
like Texas, which already pursues many pro-growth
policies attracting workers and their families into
the state. Serving as a foundation for economic
development and growth more generally
beyond urban revival and renewalstatewide,
universal school choice policies would open school
competition across the whole state, attracting
national and even international investment,
innovative education entrepreneurs, and cutting
edge education reinvention, available to everyone at
their own choice, student by student and family by
family. That would provide additional advantages
of synergy and economies of scale in cutting edge
education, making Texas #1 in education. Like Wall
Street for finance, Silicon Valley for high tech, and
Hollywood for movies, Texas would be synonymous
with educational quality and innovation. Such
progressive reform would benefit the most the
disadvantaged, the poor, blacks, Hispanics, and other
minorities who are being left behind the worst by
the current, rigid, monastic, monopolistic, education
system still rooted in practices and organization
stemming from the Middle Ages. It is precisely these
most disadvantaged students that the status quo
is failing the most. These disadvantaged students
are falling farther and farther behind their grade
level norms, until they drop out altogether at very
catastrophically high rates. What chance of success
would you have if born to a poor, single mother in
a poor neighborhood dominated by crime, drugs,
and gangs, spilling over into the schools themselves,
as you fall farther and farther behind other students
nationally and even globally in a modern, global,
high tech economy?
As Gingrich recounts:
[S]tudents in thousands of traditional schools are
falling far below grade level and eventually give up.
One in four students nationwide does not graduate
high school, and in some places the rate is much
higher. Nearly 40 percent of students in Chicago
drop out of school; among African Americans,
that number is over 60 percent. One out of three
fourth graders cannot read, scoring below basic on
literacy tests. One-third of eighth graders and 38
percent of twelfth graders read below grade level.117

Academic studies show that reducing dropout rates,
as school competition does dramatically, is powerfully
pro-growth, resulting in higher wages and incomes
for a lifetime, aggregating to a powerful boost to GDP
over time. Improved education performance resulting
in higher student achievement also builds what
economists call human capital, which means the
educated skills that contribute to improved economic
performance and increased productivity and output.
That further contributes to a lifetime of higher wages
and incomes, aggregating into substantially higher
economic growth and GDP.
Those higher wages and incomes from more new jobs
would finance bigger, better, more modern housing,
resulting in increased residential development. The
growing families moving into those homes with their
higher wages and incomes would in turn finance more
commercial development through retail purchases of
services and materials for themselves and their homes,
which would also increase industrial output for cars,
furniture, modern electronics and other consumer
products. Because of the central importance of
human capital in our modern, high tech economy, the
overall impact in the highly advanced and productive
U.S. economy is potentially quite large.
districts old and decaying stock of small dwellings

likely discouraged some in-migration that more
attractive areas would have seen as an effect of an
EVP-like program.120
Those increased housing prices in turn did result in
an increase in the housing stock in the Edgewood
school district. Single family dwelling units grew
by 2.1 percent from 1998 to 2001, 4.9 percent from
1998 to 2005, and 7.4 percent from 1998 to 2008.121
The market value for these Edgewood single family
homes grew 28.1 percent from 1998 to 2001, 58.8
percent from 1998 to 2005, and 95.4 percent from
1998 to 2008, which was higher than in all the control
districts.122
The beginning of this process was evident in the

results of the broad-based school choice initiative
in the Edgewood Independent School District in
San Antonio. Over the 10 year period of that school
choice experiment, 1998-2008, property values within
the Edgewood school district rose by 86.4 %, though
was not unusual for the districts that were deemed
comparable to the EISD.118
However, in the earlier years of the reform when the
ability to enroll in the program was universal and
participation was near its peak, property values in
Edgewood rose by 56.4 percent, higher than in the
control districts chosen by Merrifield and Gray as the
most comparable to Edgewood.119 The authors state:
We believe that a typical school district, even one
with much better public schools than [Edgewood],
will likely see larger economic development effects
than we observed in Edgewood. The Edgewood
Like Wall Street for finance,

Silicon Valley for high
tech, and Hollywood for
movies, Texas could be #1
in education by enacting
universal choice.
24
The number of Edgewood multifamily residential

properties grew by 1.5 percent from 1998 to 2001,
17.1 percent from 1998 to 2005, and 25.1 percent
from 1998 to 2008.123 The total market value of these
multifamily residential properties skyrocketed by 209.1
percent from 1998 to 2008, which was higher than in
any of the control districts.124 Growth in Edgewood
mobile homes and in mobile home market value also
topped all the control districts.125 The market value
for Edgewood mobile homes rocketed by 65.9 percent
from 2000 to 2001, and 96.3 percent from 2001 to
2002.126 But market values leveled off after that, as the
Edgewood school choice program leveled off, and then
was phased out.
Merrifield and Gray report that, The Lago Vista
Village apartments built in 1998 lured tenants with
banners touting access to the Edgewood school choice
program, and a market brochure stating, If you rent
here, your child will get a scholarship to go to any
school you choose.127 Similar promotions marketed
another 65-unit, single family housing development,
Villas de San Antonio. Both were the first major
housing projects in Edgewood in 40 years. Both
properties quickly filled and sold out, Merrifield and
Gray reported.128
These trends were followed in turn by substantial new
business formation in the Edgewood school district,
with a lag of about two years. Commercial properties
jumped by 33.2 percent from 1998 to 2005, with most
of that growth spurting after 2001 because of the lag.129
This rapid growth topped the growth of all the control
districts, just as the market value of commercial
property surpassed the growth in the control districts
during the rising years of the school choice reform,
before the phase out began.130
The surge in commercial property can be seen in
the statistics for other types of property that went
A large segment of the

population wants private
school choice badly enough to
relocate. Increased business
activity follows.
25
commercial. Vacant lots in Edgewood declined by

23 percent from 1998 to 2008. Industrial properties
declined by nearly 30 percent, as they were converted
to commercial uses. The market value of Edgewood
industrial properties consequently boomed by 227
percent, as alternative users bid up their prices, when
school choice was booming in the earlier years before
the phase-out began.131
This resurgent economic development produced
concomitant property tax revenue growth in
Edgewood, which redounded to the benefit of public
schools, financed at least in part by those revenues.132
Increased revenues also resulted from the increased
jobs and earnings from the Edgewood school choice
boomlet, bolstered by increased graduation rates,
and declining numbers of dropouts which are very
costly to state and local governments in lost revenues
and increased spending for social programs and law
enforcement. These were apparently the reasons that
Edgewood was able to pay the third highest rate of
teacher salary increases from 1998 to 2008, achieving
the third highest salary, among an extended group of
control districts.133
Merrifield and Gray conclude,
Regions adopting school choice programs realize
immediate economic growth.Identification and
measurement of quickly and cheaply realized local
economic development effects that could improve
the political feasibility of large, low-restriction
parental choice programs, and accelerate their
spread to additional places, are the most noteworthy
of the [Edgewood school choice] assessment. A
large segment of the population wants private
school choicebadly enough to relocate. Increased
business activity follows. A political jurisdiction
interested in stimulating economic development
while also improving their school system (both
public and private) need look no further than
[school choice] programs. Such programs would not
require new taxes.134 (emphasis added).
HIGHER WAGES AND INCOME
The American education system is plagued by high
inner city and minority school dropout rates, which
are top indicators of failing public schools. Nationally,
more than 7,000 students drop out every school day.135

That adds up to almost 1.3 million students dropping
out each year.
The Edgewood experience shows that school choice
is very effective in countering that negative trend. As
discussed above, from 1998 to 2004, school dropout
rates declined sharply, as graduation rates rocketed up,
in choice schools. The resulting competition effects
caused an echo in the public schools, where dropout
rates declined, and graduation rates rose, as well.
The same result was seen in the Milwaukee school
choice program. Warren estimates that low income
school choice students in Milwaukee were about 18
percent more likely to graduate from high school than
students from across the entire economic spectrum in
the Milwaukee public schools.136
A 2009 study by the Alliance for Excellent Education
found that high school graduates earn an additional
$6,322 in annual income on average and pay an
additional $1,079 in taxes each year.137 That would add
up to an additional $24.9 million in personal income
and about $4.2 million in extra tax revenue each
year from those additional Milwaukee public school
graduates.138
A further 2010 study took the analysis nationally
for each of the nations 50 largest cities and the 45
metropolitan areas that surround them, separately
and combined.139 That study found that reducing the
estimated 6,500 students that dropped out of school
in the Milwaukee metropolitan area in 2008 by 50%
would result in an additional $41 million in earnings
from these graduates on average each year.140 That
would result in an additional $7 million in state and
local income, sales and property taxes paid each year.141
The additional graduates would spend an added $28
million each year, and invest a further $10 million
each year.142 That increased spending and investment
would support 300 new jobs, and increase regional
GDP by $51 million annually, by the midpoint of their
careers.143 By that point, these new graduates would
purchase homes valued by $100 million more than
otherwise, and spend an additional $3 million on
vehicle purchases every year.144
Tim Sheehy, President of the Metropolitan Milwaukee
Association of Commerce, told the Milwaukee Journal
26
Sentinel, In the city of Milwaukee, the percentage of

people who dont have a high school diploma 21%
- outnumbers the percentage of people with a college
degree or better 20%.145
prosperity.
If we add up the 5 largest metro areas in Texas

combined -- Dallas, Houston, San Antonio, El Paso,
and Austin reducing by half the 77,600 dropouts
from those 5 metro areas combined would mean an
additional 38,900 high school graduates earning on
average almost an additional half a billion dollars each
year. They would eventually purchase new homes
worth almost three quarters of a billion, and pay an
additional $46 million in state and local taxes every
year on average. Their higher incomes would finance
an additional $351 million in increased consumer
spending each year on average, and an additional $127
million in increased investment. That would support
nearly 4,000 new jobs, altogether increasing state GDP
by an additional $653 million each year on average.146
Shapiro and Hassett provide further important

signposts on the total potential economic growth from
school choice reforms. They report that:
Extrapolating these results statewide for the whole

state of Texas, reducing the 130,000 dropouts statewide
by half, which is achievable by statewide school choice,
would result in an additional 65,000 high school
graduates each year. Those graduates would earn an
additional $800 million in earnings every year, which
they would ultimately use to buy bigger, better, newer
homes worth an additional $1.2 billion. They will
spend an additional $585 million each year and invest
an additional $212 million. That increased economic
activity from these new graduates alone would create
an additional nearly 6,600 jobs, the equivalent of
opening a new, major manufacturing plant. All of this
would end up further increasing GDP in the state by
an additional $1.1 billion.
Needless to say, that adds up altogether to a lot more
economic development and growth that could be
achieved by expanded school choice in Texas.
ECONOMIC GROWTH
In the new education world, new education gaps
would likely develop, as the rest of the nation struggled
to catch up to the new Texas free market education
gazelle. Such free market education choice policies
would transform American education into a major
contributor, rather than a major drag on growth and
27
Total Economic Growth
$ The net present value of the additional lifetime

income from earning a high school diploma
as compared to dropping out of high school
is $215,000.147 Using our metric above of an
estimated additional 65,000 Texas high school
graduates each year due to statewide school
choice would mean adding every year additional
lifetime income each year for Texas workers of
another $14.235 billion.
$ The net present value of the additional lifetime
income from enrolling in college compared
to ending ones education with a high school
diploma is $207,000.148
$ Increasing graduation rates by 1 percentage point
in a zip code leads to an increase in residential
property prices of 0.54%.149
Using Census Bureau data, Shapiro and Hassett further
report that earning a high school diploma increases
the median annual income of a full time worker by
about $10,000 a year.150 That means that each of the
additional 65,000 Texas high school graduates each
year would earn an additional $10,000 each year on
average.
Shapiro and Hassett add that earning a college degree
adds another $21,000 a year in median annual income,
or an increase of $31,000 a year compared to a high
school dropout.151
In summary, they report that each additional year
of education boosts median earnings by roughly 11
percent.152
A Lifetime of Differences
Shapiro and Hassett further report that these income

differences from higher education increase as the
worker ages and put his or her human capital to more
productive uses.
28
$ Workers with high school diplomas initially earn

about 23 percent more than those of the same
age who dropped out of high school.153 That
means that each of the additional 65,000 Texas
high school graduates would earn on average 23
percent more each year when they graduate than
high school graduates.
$ By age 40, this gap widens to 54 percent.154 That
means that by age 40, each of the additional
65,000 Texas high school graduates would be
earning on average each year 54 percent more
than high school dropouts:
$ Similarly, college graduates initially earn nearly 60
percent more than high school graduates.155
$ By age 40, this earnings premium rises to almost
double (92.5%).156
Shapiro and Hassett consequently calculate:
$ A high school dropout who works full time until
age 64 can expect lifetime earnings of $564,000.157
$ A high school graduate who works full time until
age 64 can expect lifetime earnings of $782,000,
or $218,000 more.158
$ A high school graduate who attends college to get
an Associates degree and works full time until
age 64 can expect lifetime earnings of $931,000,
another $149,000 more than the high school
graduate, and another $367,000 more than the
high school dropout.159
$ A student that completes college earning a
bachelors degree and works full time until age
64 can expect lifetime earnings of $1,275,000,
about half a million ($493,000) more than the
high school graduate, and almost three quarters
of a million ($711,000) more than the high school
dropout.160
Housing Values
Shapiro and Hassett also calculate the impact of these

higher earnings and income from increased education
achievement on housing values:
$ A one percent increase in a school districts
29
average state test scores in Nassau County, New

York, on Long Island, increased housing values in
the district by nearly 20% (19.9).161
$ A one percent increase in a school districts
average test scores in Westchester County, New
York, increased housing values in the district by
18.2%.162
Based on the results from school choice found in
the academic literature discussed above regarding
improved test scores and increased property values,
we estimate that the statewide school choice resulting
from the TSG program would increase property values
in Texas by 20 percent or more.
Hanushek, in trying to demonstrate the economic
impact of good teachers, provides the ultimate
summary statistics on the potential impact of school
choice and economic growth. He finds that, across
A Lifetime of Earnings
Upon starting work, earnings differ
based on level of education:
For every $1.00 a

high school
dropout earns...
...a high school

graduate earns
$1.25...
...and a college
graduate earns
$2.00.
And these effects last a lifetime - here are the average

lifelong earnings based on level of education:
High School
Dropout
$564,000
High School
Graduate
$782,000
Associates
Degree
$931,000
Bachelors
Degree
$1,275,000
The Economic Impact

Property Values
20% or more
The TSG would increase property values
in Texas by 20% or more.
Closing the Gaps

If the gap
between:
Then:
the US and
Finland was
closed...
2008 GDP would

have increased by
$1.3 - $2.3
trillion.
Whites,
Blacks, &
Hispanics was
closed...
2008 GDP would

have increased by
$310 - $525
billion.
Global
Race
Income
low-income
students and
the rest was
closed...
2008 GDP would

have increased by
$400 - $670
billion.
the U.S. as a whole, the present value of improving

[test] scores by 0.25 standard deviations would be $44
trillion.163 But as the discussion above showed, school
choice has already been shown several times to raise
test scores by that much, and more. For Texas alone,
that would mean a present value increase due to future
economic growth of $4 trillion.
Hanushek also found that, The estimates of the
growth impacts of bringing U.S. students up to Finland
[the current world leader in standardized test scores]
imply astounding improvements in the well-being of
U.S. citizens. The present value of future increments
to GDP in the U.S. would amount to $112 trillion.164
That would involve an improvement in test scores
of 0.58 standard deviations.165 The discussion above
showed that such an improvement can be achieved by
broad, universal school choice, like the Texas Taxpayer
Savings Grant. For Texas alone, that would mean a
present value increase in state GDP of $10 trillion.166
That would be the economic equivalent of increasing
present wealth in the state of Texas by $10 trillion.
Hanushek translates these economic results into
the equivalent of a long term increase in the annual
U.S., or in our case Texas, economic growth rate of
1 percentage point.167 That compounding year after
year, after growth rates in recent years of 2% or less, or
longer term U.S. growth rates of a little over 3%, would
add up to a major increase in economic growth.
A study from the prominent economic consulting firm
McKinsey and Co. further aggregates the magnitude
of economic growth that can arise from school choice
reforms. McKinsey reports, If the United States had
in recent years closed the gap between its educational
achievement levels and those of better performing
nations such as Finland and Korea, GDP in 2008 could
have been $1.3 trillion to $2.3 trillion higher. This
represents 9 to 16 percent of GDP.168 In other words,
it would mean an increase in GDP of 9 to 16 percent.
For Texas alone, that would mean an increase of
$125.76 billion to $224 billion in state GDP.
The report adds, If the gap between black and Latino
student performance and white performance had been
similarly narrowed, GDP in 2008 would have been
between $310 billion and $525 billion higher, or 2 to 4
percent of GDP.169
With the gaps closed, annual U.S. GDP

would increase by 17% to 30%, or $3.8 to $5.5
trillion every year. For Texas,
thats an annual increase of $260 to $460 billion.
30
McKinsey further reports, If the gap between lowincome students and the rest had been similarly
narrowed, GDP in 2008 would have been $400 billion
to $670 billion higher, or 3 to 5 percent of GDP.170
McKinsey also projects, If the gap between Americas
low performing states and the rest had been similarly
narrowed, GDP in 2008 would have been $425 billion
to $700 billion higher, or another 3 to 5 percent of
GDP.171
McKinsey summarizes:
Put differently, the persistence of these educational
achievement gaps imposes on the United States
the economic equivalent of a permanent national
recession. The recurring annual economic cost of
the international achievement gap is substantially
larger than the deep recession the United States is
currently experiencing [the 2008-2009 financial
crisis]. The annual output cost of the racial, income,
and regional or systems achievement gap is larger
than the U.S. recession of 1981-82.172
The lessons McKinsey draws from these calculations
are:
While the price of the status quo in educational
outcomes is remarkably high, the promise implicit
in these findings is compelling. In particular, the
wide variation in performance among schools and
school systems serving similar students suggests that
the opportunity and output gains related to todays
achievement gap can be substantially closed. Many
teachers and schools across the country are proving
that race and poverty are not destiny; many more
are demonstrating that middle-class children can be
educated to world-class levels of performance.173
Indeed, if all American students and their parents
were free to choose the school they believed would
work best for them, there is no reason why all of these
education gaps could not be closed forthwith. That
would mean nationwide an increase in U.S. GDP
of up to 17% to 30%, or $3.1 trillion to $5.5 trillion
over twenty-five years, given the current level of U.S.
GDP. For Texas alone, that would mean an increase of
roughly $260 billion to $460 billion in state GDP.
Under such school choice policies, each student
and family would be choosing from a full range of
31
alternative schools in a competitive marketplace

trying the full possible range of alternative teaching
methodologies and discipline specialties. They could
change their mind if they decided another alternative
than their previous choice would work better.
Students would not be subject to one-size-fits-all
teaching and schools. They could individually match
up with the school subject and teaching methodology
that best suited their individual needs and preferences,
in a decentralized marketplace.
In the new, competitive, education marketplace,
schools and their teachers would all be subject to
maximum market incentives to perform at the
highest levels. Schools and teachers would be subject
to market competition and incentives to innovate
with new available technologies to possibly reinvent
education at different school levels.
Teachers would themselves gain from competition
from schools competing for their services, with
markets bidding up their pay once they were freed
from the trap of working for a government monopoly.
Schools would be forced by market competition to
respect teacher professionalism and discretion to
choose teaching materials and methodologies, vastly
improving working conditions compared to current
public schools. In this new competitive marketplace,
teachers would be free to make choices of their own,
picking schools to work for that best suited their skills,
needs and preferences. Teachers would also enjoy new
entrepreneurial opportunities of their own to start new
schools, or to market specialty teaching services.
THE ECONOMICS OF REDUCED GOVERNMENT SPENDING
There is little question that the reduced Texas state
budget on account of the Taxpayers Savings Grant
The size of the Texas economy

in ten years would be between
$4.3 billion and $14.7 billion
larger solely because of the
budgetary impacts of TSGP.
Table 3: Lowest Tax Burden States vs. Highest Tax Burden States
Nine States with
Lowest Tax Burden
Nonfarm
Tax Burden
Payroll
as a Share of Population
Employment
Personal
Income
Personal
Income
Gross State
Product
State & Local

Tax
Revenue
10-Year Growth
Wyoming
6.90%
15.70%
16.20%
83.40%
113.50%
121.10%
Alaska
7.00%
13.40%
12.60%
63.30%
84.70%
232.80%
South Dakota
7.10%
10.60%
10.20%
64.00%
63.00%
50.90%
Texas
7.50%
20.10%
19.50%
75.40%
81.70%
63.30%
Louisiana
7.60%
2.30%
2.40%
60.10%
60.80%
44.00%
Tennessee
7.60%
11.10%
3.30%
48.80%
39.20%
50.20%
New Hampshire
8.00%
3.40%
3.60%
46.00%
35.00%
54.50%
Nevada
8.10%
24.10%
8.00%
46.10%
46.20%
66.70%
Alabama
8.30%
7.30%
1.50%
44.40%
42.40%
45.10%
9 State Average*
7.60%
12.00%
8.60%
59.10%
62.90%
80.90%
Vermont
10.50%
1.40%
2.30%
44.90%
38.80%
63.50%
Rhode Island
10.50%
-1.90%
-2.80%
35.70%
31.60%
44.40%
Maryland
10.60%
7.90%
4.40%
47.90%
48.90%
52.20%
Minnesota
10.70%
7.30%
4.40%
44.60%
42.80%
46.50%
Wisconsin
11.00%
4.80%
1.60%
41.70%
37.70%
37.80%
California
11.40%
8.70%
4.10%
49.20%
43.50%
54.00%
Connecticut
11.90%
3.20%
0.60%
43.10%
36.60%
47.90%
New Jersey
12.30%
3.50%
-1.10%
39.10%
34.60%
57.60%
New York
12.60%
2.50%
6.10%
50.60%
45.20%
64.70%
9 State Average*
11.30%
4.20%
2.20%
44.10%
40.00%
52.10%
9.40%
9.10%
5.90%
51.70%
51.00%
56.50%
National Average*
(tax burden as of 2011, performance metrics are 2003-2013 unless otherwise noted)
* Averages are equal-weighted
Tax Burden as a Share of Personal Income is calculated by the Tax Foundation and is currently as of 2011. It is based on data from
the Census Bureaus State & Local Government Finances dataset, but makes several modifications in order to take into account
factors, such as taxes paid to other states, that are not accounted for in unadjusted Census figures.
State & Local Tax Revenue is the 10-year growth in state and local tax revenue from the Census Bureaus State & Local Government
Finances survey. Because of data release lag, these data are 2001-2011.
Source: Tax Foundation, Laffer Associates, U.S. Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis
32
Program would have positive supply-side ramifications

throughout the state. As our former colleague Milton
Friedman frequently admonished, Government
spending is taxation. Accordingly, cuts in government
spending increase incentives to work, produce and
invest. This is particularly true in states, where
balanced budget requirements dictate that an increase
in spending must be funded via taxation.
Each year, the Tax Foundation calculates measures
of tax burdens faced by citizens at the state and local
level. To make the data comparable from one state to
another, the Tax Foundation divides total taxes paid by
the states total personal income. A simple way to think
about the Tax Foundations measure is that the figure
represents the share of a persons income that is paid
to state and local governments in taxes. Table 3 shows
the nine states with the lowest tax burdens as a share of
personal income and the nine states with the highest
tax burdens as a share of personal income along with
various state performance measures. Tax Foundation
tax burden data are through 2011the most recently
available numbers.174 (TABLE 3)
Table 3 shows that the nine states with the lowest state
and local tax burdens have, on average, tax burdens
that are 3.7 percentage points (pp) lower than the nine
states with the highest state and local tax burdens. To

measure performance outcomes in states, we looked
at growth in various metrics over 10-year periods.
The 10-year performance advantage that the average
low tax burden states enjoy over the average high tax
burden states is stunning: 7.8pp in population growth,
6.4pp in nonfarm payroll employment growth, 15pp in
personal income growth, 23pp in gross state product
growth and 28.9pp in state & local tax revenue growth.
To provide a rough estimate of the budgetary impacts
of TSGPwhat amounts to a large cut to Texas tax
burdenwe can relate the change in tax burden to the
performance outcomes associated with such a change
as shown in Table 3.
According to Joseph Basts Heartland Institute Policy
New savings and

investment would flow into
underdeveloped and declining
urban areas, which most
investors and entrepreneurs
have now given up on.
Who is a high-risk student?
What level of education do

criminals have?
Answer: students in the top 20% of crime

risk. These students are dominantly:
Answer: 65% of inmates lack a high school

diploma.
Diploma
18%
35%
33
No Diploma
82%
65%
General
Population
Inmates
Brief Making Texas Public Education More Efficient:

Taxpayer Savings Grant Program,
The Taxpayer Savings Grant Program would enable
approximately 321,000 students to use savings grants
to enroll in private schools in the first year saving
taxpayers some $561 million. Savings in the first
biennial budget would be $1.3 billion. In subsequent
years savings would grow so that over the course of
12 years, using extremely conservative estimates,
taxpayers would save $22.8 billion.175
Based upon analysis from the LBB and from Basts
report, taxpayer savings in Texas from TSGP could be
between $476 million and $1.9 billion per year when
the program is in full operation.176 According to the
Bureau of Economic Analysis, Texas annual personal
income as of 2Q-2014 was $1.225 trillion (8.3% of
total U.S. personal income).177 As such, implementing
TSGP would be analogous to lowering the tax burden
faced by Texans by between 0.039 and 0.155 percent.
Based upon our research, a one percentage point
lower tax burden is associated with 6.19 percent
faster gross state product growth over a decade, as
incentives to work, produce and invest are higher are
lower rates of taxation. TSGP is accordingly estimated
to result in between 0.24 percent and 0.96 percent
faster GSP growth in Texas over ten years. Applying

these percentage point growth rates to the size of
Texas economy today ($1.53 trillion as of 2013), these
projections mean the size of the Texas economy in ten
years would be between $3.6 billion and $14.7 billion
larger solely because of the budgetary impacts of TSGP.
THE ECONOMICS OF CRIME REDUCTION
Crime is another drag on economic growth. It
is effectively another tax on savings, investment,
productivity, and property. To see this more clearly,
just imagine the impact on local economies if you
could go anywhere in Chicago, Detroit, or Los Angeles
with no fear of any assault or other crime against
yourself or your property.
New savings and investment would flow into the
underdeveloped and declining areas of those cities,
which most investors and entrepreneurs have now
basically given up on. New stores and restaurants
would open up without fear of vandalism, theft or
burglary. Customers could flock to those stores and
restaurants without fear of criminal assault on their
persons or property. Housing values would rise,
stimulating new housing development, particularly on
vacant lots, or to replace abandoned or underutilized
How does school choice

affect high-risk students?
By how much is the social

cost of crime reduced?
Answer: their crime rate dropped by 50%.
Answer: by $3,916 and $7,843 for high- and

middle-school students, respectively
-50%
High
School
Students
Middle
School
Students
$7,272
$4,606
-$3,916
-$7,843
34
Winning a school choice

lottery greatly reduces criminal
activity, and the greatest
reduction occurs among
youth at the highest risk of
committing crimes.
properties. That would stimulate associated
commercial development.
School choice is proven to reduce crime over the long
run, by reducing school dropout rates and increasing
graduation, and by promoting higher educational
achievement, all of which increases future earnings
ability by students. This was further demonstrated in
a recent study by David J. Deming, Assistant Professor
of Education at the Harvard Graduate School of
Education.
Deming summarizes his study by writing, In this
study, I find that winning a lottery for admission to
the school of choice [i.e. a local school choice lottery]
greatly reduces criminal activity, and that the greatest
reduction occurs among youth at the highest risk for
committing crimes.178
Deming investigates:
whether the opportunity to attend a school other
than a students assigned neighborhood school
reduces criminal activity, especially among
disadvantaged youth. Many of the schools chosen
by the students were better on traditional
indicators, such as student test scores and teacher
characteristics. All of them, however, were preferred
by the applicant over the default option. The analysis
therefore sheds light on whether efforts to expand
school choice can be an effective crime-prevention
strategy, particularly when disadvantaged students
can gain access to better schools.179
Deming adds:
Criminal activity is concentrated among minority
males; it begins in early adolescence and peaks when
most youth should still be enrolled in secondary
school. The schools these young men would attend
35
are typically in high-poverty urban neighborhoods,

have high rates of violence and school dropout, and
struggle to retain effective teachers. Such schools
may be a particularly fertile environment for the
onset of criminal behavior.180
Deming further summarizes his work,
I compare the criminal activity of students who won
the lottery to attend their first choice school to that of
students who lost the lottery. I find consistent evidence
that attending a better school reduces crime among
those age 16 and older, across various schools, and for
both middle and high school students. The effect is
largest for African-American males and youth who are
at highest risk for criminal involvement. In general,
high risk male youth commit about 50 percent less
crime as a result of winning the school choice lottery.
They are also more likely to remain enrolled in school,
and they show modest improvements on measures of
behavior such as absences and suspensions.181
Demings study finds that winning a lottery for
admission to a preferred school at the high school level
for high school students in the high risk group (test
scores on average one standard deviation below the
state average, overwhelmingly male, disproportionately
African American, absent and suspended many more
days than the average student) reduces felony arrests
among these students by 44%, reduces the average
social cost of their crimes by more than 35%, and
results in the crimes that are still committed with
sentences 40% less than among lottery losers. Among
high risk middle school students, winning a school
choice lottery reduces the average social cost of the
crimes committed by middle school students by 63%,
and the sentences for crimes that are still committed by
64%.
Deming concludes:
I find that winning a lottery for admission to the
school of choice greatly reduces criminal activity,
and that the greatest reduction occurs among
youth at the highest risk of committing crimes. The
impacts persist beyond the initial years of school
enrollment, seven years after the school choice
lottery was held. The findings suggest that schools
may be an opportune setting for the prevention of
future crime.182
P A RT I V: RES HAPING E D U C A TIO N

Straightforward, neoclassical economic analysis tells
us that such broad school choice would have powerful
impacts in improving educational achievement and
results. The reform would introduce revolutionary
market competition into what are now bureaucratically
administered education programs. That would create
powerful market incentives to improve education
performance, results and achievement throughout
the entire education system, including in the existing
public schools, and for students that remain in their
present schools and dont exercise choice rights to
change schools.
A growing body of academic research increasingly
documents these results. Students who exercise choice
to attend private or charter schools demonstrate
marked, meaningful improvements on standardized
tests, showing increased educational achievement.
Moreover, research now shows powerful, positive
effects of competition in improving educational
performance and achievement for the students that
remain in the public schools without exercising choice.
Academic research also demonstrates that there is no
validity behind any concern over cream skimming
by private or charter schools due to increased freedom
of choice. Rather, the research shows that parents
seek to use choice for students who are having trouble
in public schools, particularly minority and lower

income students from single parent homes. Some
of the literature even uses the term reverse cream
skimming to denote this trend, indicating that it is the
more disadvantaged students who utilize school choice
to escape failing public schools to seek better education
alternatives.
would also free students with diverse needs to match
up with schools and institutions that best suit their
individual needs and preferences. Liberating the
supply-side of education as well as the demand side
would produce revolutionary diversity in education,
with increasing schooling specialization and variety.
Some schools and institutions would specialize in
assisting and better educating weaker students that
are falling behind, ultimately slashing dropout rates.
Others would specialize in different subject areas,
such as science, the arts, music, technology, literature,
history, business, engineering, athletics, or even
economics, maximizing appeal and effectiveness in
education to the broadest spectrum of students.
This new diversity in education would include
differing education methodologies, philosophies, and
sweeping innovation, particularly made possible by
modern communication technologies. Students and
36
parents volunteering to participate in such education

trailblazing, would ultimately determine themselves in
decentralized markets what works and what doesnt.
The new choice, freedom, and opportunities liberated
by such reforms would create powerful, revolutionary,
market incentives for path-breaking innovation, quite
possibly reinventing education.
This new freedom of education would produce
revolutionary benefits and gains for teachers and
educators as well. Teachers would no longer work
for a monopoly employer with a take-it-or-leave-it
attitude toward teacher compensation. With school
choice and liberated markets, teachers would also
enjoy competitive markets working in their favor, with
a multiplicity of contending schools competing for
their services, accordingly bidding their compensation
up. School choice and market competition would also
lead to better working conditions, over such matters
as classroom and school discipline, and increased
professionalism, with more teacher choice and control
over teaching methods and materials.
In this new, liberated teacher market, teachers too
would have many more choices about where to work,
and different teaching opportunities. They could
choose from a wide range of subject specialties,
differing teaching methods and philosophies, and
widely differing student abilities and backgrounds,
from the struggling and disadvantaged to the gifted
and rapidly advancing. Teachers too could then
choose what combination of opportunities would best
suit their abilities and interests. This new education
market would also offer teachers a wide range of
possible entrepreneurial opportunities, from opening
new schooling ventures, to offering specialty teaching
services to the market.
The availability of school choice draws more young
families with children, and their working adults, to
districts, neighborhoods, and towns offering school
choice. That surge in local population drives up the
value of residential housing in the district, which
promotes more residential development. The resulting
surge in consumer demand from the new families
37
moving in promotes business expansion and creation,

and commercial development. This translates into
new shopping malls, grocery stores, drug stores,
restaurants, movie theaters, and other retail and
recreational outlets serving the booming local
population. This developing local economic boom
attracts more capital investment to the area, which
creates more jobs and raises wages.
The local population surge increases the supply of
labor in the affected area, which draws still more
business expansion and creation, and commercial
development. All the resulting increases in taxpaying
businesses and workers increases tax revenues to local
governments, which can lead to tax rate cuts, further
promoting economic development and growth. It
would also lead to more local resources for education
and teachers.
resulting from school choice also increase the human
capital of the population. That increased human
capital results from reduced dropout rates and higher
graduation rates, as well as increased cognitive skills
reflected in higher test scores and other indicators of
higher educational achievement.
Increased human capital increases production and
output, which means more economic growth. It also
produces more jobs and higher wages and incomes,
resulting from increased productivity, which further
reflects higher economic growth.
products. Because of the central importance of human
capital in our modern, high tech economy, the overall
potential impact of a revamped education system on
the highly advanced and productive Texas economy is
quite large.
C O N C LUS ION
Students who exercise choice to attend private or
charter schools demonstrate marked, meaningful
improvements on standardized tests, showing
increased educational achievement. Moreover,
research now shows powerful, positive effects of
competition in improving educational performance
and achievement for the students that remain in the
public schools without exercising choice.
would also free students with diverse needs and
preferences to match up with schools and institutions
that best suit them. Liberating the supply-side of
education as well as the demand side would produce
revolutionary diversity in education, with increasing
schooling specialization and variety.
possibly reinventing education.

This new freedom of education, through the TSGP,
would produce revolutionary benefits and gains
for teachers and educators as well, with the rise of
competitive markets for teachers resulting in higher
pay and better working conditions.
School choice increases housing values, promoting
residential development, which leads to commercial
development. That development attracts more capital
investment, which creates jobs and increases wages.
For statewide school choice policies within the state

of Texas, the impact on economic growth would be
This new diversity in education would include differing a proportional subset of the estimated impact on the
economy as a whole. Such policies nationwide are
education methodologies and philosophies, and even
estimated ultimately to increase U.S. GDP by up to
new innovation and experimentation, with students
17% to 30% over twenty-five years, which would mean
and parents volunteering to participate in such
increased national GDP of $3.1 trillion to $5.5 trillion.
education trailblazing, and ultimately determining
themselves in a decentralized and diverse market what Such policies within the state of Texas would similarly
works and what doesnt. Particularly intriguing is how increase state GDP ultimately by 17% to 30%, or by
roughly $260 billion to $460 billion. Nationwide,
educators, parents and students would experiment
the present value of such future economic growth
with new communication technologies and quite
38
is estimated to be $44 trillion to $112 trillion. The

proportionate share for such policies within the state of
Texas would be $4 trillion to $10 trillion.
These economic results can be translated into the
equivalent of a long-term increase in the annual
economic growth rate for Texas of 1 percentage point.
That additional growth compounding year after year,
compared to national economic growth rates in recent
years of 2% or less, or longer term U.S. growth rates
of a little over 3%, would add up over time to a major
increase in state GDP. At a long-term real rate of
economic growth of 4% instead of 3%, the additional
economic growth resulting from just that one
percentage point of higher growth every year would
mean that total Texas state GDP after 40 years would
be bigger by a total amount equal to two times the
entire current Texas state GDP.
resulting from school choice also increase the human
capital of the population. That increased human
capital results from reduced dropout rates and higher
graduation rates, as well as increased cognitive skills
reflected in higher test scores and other indicators
of higher education achievement. Increased human
capital increases production and output, which
means more economic growth. It also produces more
jobs and higher wages and incomes, resulting from
increased productivity, which further reflects higher
economic growth.
39

products. Because of the central importance of human
capital in our modern, high tech economy, the overall
impact in the highly advanced and productive U.S.
economy is potentially quite large.
Reduced crime due to school choice further promotes
increased economic growth. By reducing dropout
rates, increasing graduation rates, and increasing job
and earnings prospects, school choice reduces crime,
which further promotes economic growth and higher
GDP. Deming finds that school choice reduces felonies
committed by high school students by 44%, and
reduces the social costs of their crime by 44%. Among
middle school students, school choice reduces the
social cost of crime by 63%.
In addition, implementing TSGP would be analogous
to lowering the tax burden faced by Texans which in
turn would result in a faster gross state product growth
over a decade, meaning the size of the Texas economy
in ten years would be between $3.6 billion and $14.7
billion larger solely because of the budgetary impacts
of TSGP.
Such results and consequences can only be described
as a win-win-win for everyone in the state. Citizens
across the state will benefit from improved education
and stronger economic growth, as the business
environment improves due to dramatic increases in
human capital.
ENDNOTES TO PAGES 1 - 11
1 Laffer Associates calculations based upon McKinsey and Company study.
2 Laffer Associates calculations based on Hanushek study.
3 John Merrifield and Joseph L. Bast, Budget Impact of the Texas Taxpayers Savings Grant Program, Heartland Institute
Policy Brief, April 2011. The grant is renewable every year until the student
4 Texas Education Agency (TEA), Cost Estimate, Senate Bill 1575 Campbell, Paxton (Introduced), April 16, 2013, p. 2.
5 Id.
6 Id.
7 Id., p. 3.
8 Legislative Budget Board, Fiscal Note, 83rd Legislative Regular Session, May 18, 2013, p. 2.
9 Id.
10 Id.
11 Merrifield and Bast, p. 6.
12 Id., p. 5.
13 Id.
14 Id., p. 16.
15 B.R. Chiswick and S. Koutroumanes, An Econometric Analysis of the Demand for Private Schooling, Research in
Labor Economics, Vol. 15, (1996), pp. 209-237.
16 Merrifield and Bast, p. 14.
17 Id., p. 16.
18 Id., p. 15.
19 Id., p. 17.
20 Id., p. 15.
21 Id., p. 17.
22 Id., p. 16.
23 Id., p. 6.
24 Jay P. Greene, The Surprising Consensus on School Choice, The Public Interest, Summer, 2001, p. 22.
25 Id., p. 19.
26 Id., p. 22.
27 Id., p. 22.
28 William G. Howell, Patrick J. Wolf, Paul E. Peterson, and David E. Campbell, Test-Score Effects of School Vouchers in
Dayton, Ohio, New York City, and Washington, D.C.: Evidence from Randomized Field Trials, The Program on Education
Policy and Governance (PEPG), Department of Government, Harvard University, August, 2000, p. 2.
29 Id.
30 Greene, Jay P., Paul E. Peterson, and Jiangtao Du, School Choice in Milwaukee: A Randomized Experiment, in
Peterson and Hassel, eds., Learning from School Choice (Wash. D.C.: Brookings Press, 1998).
31 Rouse, Cecilia Elena, Private School Vouchers and Student Achievement: An Evaluation of the Milwaukee Parental
Choice Program, The Quarterly Journal of Economics, Vol. 113, No. 2, (May 2, 1998), pp. 553-602.
32 Id., p. 554.
33 Id.
34 Greene, The Surprising Consensus on School Choice, p. 24.
35 Id.
36 Howell, William G., Paul E. Peterson, The Education Gap, Revised edition (Washington, D.C.: Brookings Institution
Press, 2002).
37 Metcalf, Kim K., Evaluation of the Cleveland Scholarship and Tutoring Program, 1996-1999, Unpublished manuscript,
Indiana University.
38 Peterson, Paul E., William G. Howell, and Jay P. Greene, An Evaluation of the Cleveland Voucher Program after Two
Years, Working Paper, Harvard Program on Education and Governance (1998).
39 Id., p. 129.
40 Id.
41 Diamond, J.W., Should Texas Adopt a School Choice Program: An Evaluation of the Horizon Scholarship Program in
San Antonio, Texas Public Policy Foundation, Austin, TX, 2007, p. 16.
42 Dr. John Merrifield, Dr. Nathan Gray, Dr. Yong Bao, and Mr. Hiram Gunasekara, An Evaluation of the CEO Horizon,
1998-2008, Edgewood Tuition Voucher Program, August 31, 2009, p.59.
43 Diamond, Should Texas Adopt a School Choice Program , p.17.
44 Merrifield et al., p. 52.
45 Diamond, J.W., supra, p.19.
46 Merrifield, et al., supra, p.52.
48 Tienda, M., K. Cortes, and S. Niu, College Attendance and the Texas Top 10 Percent Law: Permanent Contagion or
Transitory Promise, Woodrow Wilson School of Public and International Affairs, Princeton University, Princeton, NJ,
40
2003.
49 Greene, The Surprising Consensus on School Choice, supra, pp. 25-26.
50 Greene, The Surprising Consensus on School Choice, supra, p. 26.
52 Though not necessarily on a per capita basis. It is possible to design a school choice program so that the school losing
a student does not lose all of the public funds for that student, which means the end result can be an increase in per capita
spending per student in the public school for every school choice student that leaves the school.
54 Merrifield, et al., supra, p. 33.
55 Greene, J.P., & Forster, G., Rising to the Challenge: The Effect of School Choice on Public Schools in Milwaukee and San
Antonio (Civic Bulletin No. 27), New York, N.Y.: Manhattan Institute, 2002).
56 Diamond, J.W., supra, p.13
58 Id., p. 17.
60 Tienda, M., K. Cortes, and S. Niu, College Attendance and the Texas Top 10 Percent Law: Permanent Contagion or
Transitory Promise, Woodrow Wilson School of Public and International Affairs, Princeton University, Princeton, NJ,
2003.
62 Id., p. 24.
63 Id.
64 MGT of America, Management Study of the Edgewood Independent School District, Austin, TX (1999).
66 Id., p. 4.
67 Id., p. 6.
68 Id.
69 Id., p. 7.
70 Id., p. 8.
71 Id.
72 Id., p. 2.
73 Id., p. 8.
74 Id.
75 Greene, Jay P. and Marcus A. Winters, Competition Passes the Test, Education Next (Summer 2004) 66-71.
76 Hoxby, Caroline Minter, The Rising Tide, Education Next (Winter 2001).
77 Id.
78 Hanushek, E.A. and S.G. Rivkin, Does Public School Competition Affect Teacher Quality, in C.M. Hoxby (ed.) The
Economics of School Choice (Chicago: University of Chicago Press, 2002).
79 Gottlob, Brian J., The High Cost of Failing to Reform Public Education in Texas, School Choice Issues in the State
(Milton and Rose D. Foundation, 2007).
80 Belfield, Clive R., and Henry M. Levin, The Effects of Competition on Educational Outcomes: A Review of U.S.
Evidence, National Center for the Study of Privatization in Education (Mar. 2002).
81 West, Martin R., and Peterson, Paul E., The Efficacy of Choice Threats within School Accountability Systems: Results
from the Legislatively Induced Experiments, Economic Journal 116, No. 510 (2006) C46C62.
82 Chakrabarti, Rajashri, Impact of Voucher Design on Public School Performance: Evidence from Florida and Milwaukee
Voucher Programs, Econometric Society 2004 North American Summer Meetings (2004) 221.
83 Hoxby, Caroline M., How School Choice Affects the Achievement of Public School Students. Analyzing School
Choice Reforms that Use Americas Traditional Forms of Parental Choice, in Peterson and Hassel, eds., Learning from
School Choice, Washington, D.C., Brookings Press, 1998,
84 Id., p. 148.
85 Id.
86 Id.
87 Id.
88 Id., p. 144.
89 Id.
90 Id.
92 Id.
93 Paul T. Hill, The Supply-Side of School Choice, in Stephen D. Sugarman and Frank R. Kemerer, School Choice and
Social Controversy: Politics, Policy and Law, p. 142.
94 Id., pp. 142-143.
41
95 Hanushek, Eric A., Throwing Money at Schools, Journal of Policy Analysis and Management, Vol. 1, No. 1, Autumn,
1981, pp. 19-41.
96 Newt Gingrich, Breakout: Pioneers of the Future, Prison Guards of the Past, and the Epic Battle That Will Decide
Americas Fate (Washington, D.C.: Regnery Publishing, 2013), p. 26.
97 Id.
98 Id., p. 36.
99 Id., p. 37.
100 Joseph L. Bast, Herbert J. Wahlberg, and Bruno Behrend, How Teachers in Texas Would Benefit from Expanding
School Choice, Heartland Institute Policy Brief, April, 2011, p. 5.
101 Id., p. 9.
102 Id., p. 9.
103 Id., pp. 6-8.
104 Id., p. 7; See also Greg Foster and Christine DAndrea, Free to Teach: What Americas Teachers Say About
Teaching in Public and Private Schools (Indianapolis, IN: The Friedman Foundation for Educational Choice, 2009); U.S.
Department of Education, National Center for Education Statistics, Schools and Staffing Survey (SASS), http://nces.
ed.gov/surveys/sass/.
105 The Texas Constitution, Article 7. Education.
106 The Texas Taxpayer & Student Fairness Coalition et al. v. Coleman, et al., No. D-1-GN-11-003130 (Slip Opinion) (200th
Judicial District, Travis County, Texas), p. 4.
107 Id.
108 McKinsey and Company, The Economic Impact of the Achievement Gap in Americas Schools, April, 2009, pp. 2-3.
109 Laffer Associates calculations based upon McKinsey and Company study.
110 Laffer Associates calculations
111 Id.
112 Eric A. Hanushek, The Economic Value of Higher Teacher Quality, National Center for Analysis of Longitudinal Data
in Education Research, Working Paper No. 56, December, 2010, p. 21.
113 Id.
114 Laffer Associates calculations based on Hanushek study
115 Brian Domitrovic, Econoclasts: The Rebels Who Sparked the Supply Side Revolution and Restored American Prosperity,
Intercollegiate Studies Institute, 2009, p. 6.
116 Arthur B. Laffer, Stephen Moore, Rex Sinquefield and Travis Brown, The Nature and Causes of the Wealth of States,
Wiley, 2014.
117 Gingrich, supra, p. 39.
118 Merrifield, John D., and Nathan L. Gray, School Choice and Development: Evidence from the Edgewood Experiment,
Cato Journal, Vol. 33, No. 1 (Winter 2013), p.134.
119 Merrifield and Gray, supra, p. 135.
120 Id., p. 136.
121 Id.
122 Id., pp. 136-137.
123 Id., p. 137.
124 Id.
125 Id.
126 Id.
127 Id.
128 Id., p. 138,
129 Id.
130 Id.
131 Id.
132 Id., pp. 138139.
134 Id., p. 140.
135 Alliance for Excellent Education, The Economic Benefits from Halving the Dropout Rate, A Boom to Businesses in the
Nations Largest Metropolitan Areas, January, 2010, p. 1.
136 Warren, John Robert, Graduation Rates and Public Choice Students in Milwaukee, 2003-2009, School Choice
Wisconsin, January, 2011, p. 1.
137 Alliance for Excellent Education, Milwaukees Path to Economic Growththe Economic Benefits of Reducing
Milwaukees Dropout Rate, November, 2009.
138 Id.
139 Alliance for Excellent Education, The Economic Benefits from Halving the Dropout Rate, A Boom to Businesses in the
Nations Largest Metropolitan Areas, January, 2010, p. 3.
42
140 Id., p.29.
141 Id.
142 Id.
143 Id.
144 Id.
145 Erin Richards, Dropouts Lose Millions in Pay; Study Also Estimates More Graduates Would Boost Tax Revenue,
Too, Milwaukee Journal Sentinel, December 4, 2009.
146 Alliance for Excellent Education, The Economic Benefits from Halving the Dropout Rate, pp. 6,14,17, 20, 39.
147 Robert J. Shapiro and Kevin A. Hassett, The Economic Benefits of New York Citys Public School Reforms, 2002-2013,
December, 2013, p. 3.
148 Id.
149 Id.
150 Id., p. 10.
151 Id.
152 Id.; Orley Ashenfelter and Cecilia Rouse, Income, Schooling, and Ability: Evidence from a New Sample of Identical
Twins. The Quarterly Journal of Economics 113.1: 253-284 (Feb. 1998); Joshua D. Angrist and Alan B. Krueger, Does
Compulsory School Attendance Affect Schooling and Earnings? The Quarterly Journal of Economics 106.4: 979-1014
(Nov. 1991).
153 Shapiro and Hasset, supra, p. 13.
154 Id.
155 Id.
156 Id.
157 Id., p. 14.
158 Id.
159 Id.
160 Id.
161 Id., p. 16.
162 Id.
163 Eric A. Hanushek, The Economic Value of Higher Teacher Quality, National Center for Analysis of Longitudinal Data
in Education Research, Working Paper No. 56, December, 2010, p. 21. Current U.S. GDP is about $17 trillion for one year.
164 Id., p. 23.
165 Id., pp. 21-22.
166 Texas represents about 9% of total U.S. GDP.
167 Id., p. 23.
168 McKinsey and Company, , p.5.
169 Id., pp. 5-6.
170 Id., p. 6.
171 Id.
172 Id.
173 Id.
174 Liz Malm and Gerald Prante, Annual State-Local Tax Burden Ranking FY 2011, Tax Foundation, April 2014.
http://taxfoundation.org/article/annual-state-local-tax-burden-ranking-fy-2011
175 Joseph Bast, Making Texas Public Education More Efficient: Taxpayer Savings Grant Program, Heartland Institute
Policy Brief, March 2013, p. 25. http://heartland.org/sites/default/files/heartland_tsgp_policy_brief.pdf
176 $1.9 billion per year comes from the Bast study estimating over the course of 12 years, using extremely conservative
estimates, taxpayers would save $22.8 billion. (Bast, p. 25) $22.8 billion 12 years = $1.9 billion per year.
177 Source: State Quarterly Personal Income, U.S. Department of Commerce: Bureau of Economic Analysis, data
extracted December 11, 2014. http://www.bea.gov/regional/index.htm
178 David J. Deming, Does School Choice Reduce Crime? Evidence from North Carolina, adapted from a study published
in the November, 2011 Quarterly Journal of Economics.
179 Id., p.1.
180 Id., pp.1-2.
181 Id., p.2.
182 Id., p.10.
43
44
LAFFER ASSOCIATES
Investment Research
Laffer Associates is an economic research and consulting firm. It provides investment-research

services focusing on the interconnecting macroeconomic, political, and demographic changes
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JANUARY 2015

The Texas Economy

An analysis of the Taxpayer Savings Grant Program

AUTHOR | ARTHUR LAFFER

The Texas Economy

The Texas Economy & School Choice

What impact would reform have?

Texas GDP &

Texas alone of $4 trillion to $10 trillion. And the

The Economic Effect of Reducing

If the TSG cut this in half, the new graduates would...

...pay $4.6 million

Laffer Associates has determined that by slashing

These benefits from education reform would increase

Statewide school choice resulting from the Taxpayer Savings

The Texas Economy & School Choice

For more on these economic effects, see page 28.

Why Teachers Win

Such increased economic growth in Texas would

But Total Spending per student

Dakota, Rhode Island, Maine, Alaska, and Idaho. The

As a result, teachers could choose what

To produce such a massive increase in prosperity,

The Texas Economy & School Choice

found in the academic literature discussed below

and commercial development. This translates into

maintenance.3 That means the state saves money for

The Texas Economy & School Choice

The TSGs long-term impact will add

per student public school expenditure for operations

According to the TEA, the Taxpayer Savings Grant would

Taxpayer Savings Grant

estimate that 6.8% of Texas public school students

maximum grant. Two-thirds of private elementary

The Texas Economy & School Choice

groups as in a medical study.25 The control group was

The Harvard Program on Education Policy and

The maximum TSGP grant

The Texas Economy & School Choice

Table 1: Educational Improvements Documented as a Result of School Choice

New York, NY;

Cecilia Rouse, Quarterly Journal

Paul Peterson, Harvard Program

The Texas Economy & School Choice

Shapiro & Hassett, The

0.75 s.d. Hispanic: Up 50%

privately funded school choice programs in New York

Another randomized study of the publicly funded

Princeton economist Cecilia Rouse, who formerly

Another random assignment study involved the

The studies regarding the publicly funded school

scholarships.37 In other words, reading skills for all

Private sources funded a school choice program, the

The Texas Economy & School Choice

even took college admissions tests in 1999.46

Greene concludes, [T]he U.S. Department of

Moreover, experience shows that it is primarily low

School choice would

public schools introduced broader freedom of choice