How tax credit scholarships are similar to, and different from, other charities

School choice critics in Congress are pushing a proposal to penalize tax credit scholarships in the federal tax code.

In the National Review, Jason Bedrick of EdChoice points out several flaws with their idea.

Among other things, Bedrick notes, there's no reason to treat tax credit scholarships differently from other charitable contributions, as Rep. Terri Sewell, D-Ala., has proposed.

First, he claimed that the proposal would prevent donors from receiving a "double tax benefit" — but most if not all states already allow taxpayers to deduct charitable donations on their state taxes even when they're receiving a deduction for the same donations on their federal taxes. Moreover, there are hundreds of other tax credits that states offer, including for donations to a wide variety of organizations that aid the poor. To the extent that a "double tax benefit" exists, it applies to nearly all charitable contributions — there is no need to single out scholarship tax credits.

Second, Sewell's spokesperson argued that the tax-credit scholarship programs "privilege" scholarship organizations "over churches, food banks, and so many other worthy charities." But that is a matter for state policymakers. Indeed, many of the aforementioned state-level tax credits are for donations to food banks, soup kitchens, homeless shelters, and the like. For example, Arizona offers matching tax credits for every dollar donated to hundreds of organizations that help the working poor with food, shelter, health care, job training, child care, and more. The federal government allows taxpayers to deduct contributions to those organizations from their federally taxable income even if they take the Working Poor tax credit. Again, changing the federal tax treatment for donations to scholarship organizations but not for donations to these other charities makes no sense — unless one has a particular animus against school-choice programs.

Tax credit scholarships are different from most other charitable contributions in one way. In most cases, they offset expenditures that taxpayers would otherwise have to make.

Every student who leaves a public school to accept a scholarship is a student who taxpayers no longer have to pay to educate. The exact savings might vary from one state to the next, depending on how many students would have attended public schools if they didn't get a scholarship. When programs serve large numbers of low-income students, the savings are greater. If they serve more middle-income or affluent students, that cuts into the savings.

Still, the point is, charitable donations to churches, for example, don't have this same taxpayer benefit.

Also, a member of Congress is now trying to solve a problem that may not really exist. Despite all the talk of "double-dipping" and "profiting" from tax credit scholarship donations, nobody has identified an actual donor who has done so. And some states, including Florida, home of the largest scholarship program by far, explicitly forbid the rare tax code-gaming scenarios that make those theoretical financial benefits possible for donors.

(Step Up For Students, which publishes this blog, helps administer the Florida tax credit scholarship program.)

About Travis Pillow Travis Pillow is editor of redefinED. He spent his early professional career reporting on the inner workings of state government for a variety of news organizations, and became immersed in Florida's education policy debates while covering schools and the Legislature for the Tallahassee Democrat. A product of Seminole County Public Schools, he received a bachelor's degree in journalism from the University of Florida in 2010. Reach him at tpillow@sufs.org or (407) 376-3105. Also, follow him on Twitter @travispillow.
Source: How tax credit scholarships are similar to, and different from, other charities