Will Donald Trump use tax reform to create a scholarship tax credit


With the Trump administration readying to tackle tax reform, education policy experts are gearing up for what many predict will be the vehicle for the president making good on his campaign promise to steer $20 billion in federal funding to school choice: a scholarship tax credit.

"A lot of people expect that the proposal you'll hear from the administration directly will likely be for a tax credit for people who donate to organizations that give scholarships," says Neal McCluskey, the director of Cato's Center for Educational Freedom.

Republicans in the House and Senate have already penned a scholarship tax credit proposal that fits the bill. And by hitching a ride on a larger tax overhaul, a scholarship tax credit plan would avoid having to go it alone the way a private school voucher bill would, or a bill to make federal pots of money for poor students or students with disabilities portable – two other legislative proposals that lawmakers have floated.

"A tax credit would get a lot less political pushback," McCluskey says. "The interesting part of that is, I don't know if the Department of Education itself would have to be all that involved in it because it's working through the tax code. But I think what you'd see is Secretary [Betsy] DeVos being the public spokesperson for administration's proposal to have a scholarship tax credit."

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Scholarship tax credit programs allow individuals or corporations to write off a percentage of their owed state taxes by making donations to non-profit scholarship-granting organizations that issue the private school scholarships to students. Students can then use that voucher to cover tuition and fees at a private school that's approved by the scholarship-granting organization.

Currently 17 states offer residents some type scholarship tax credit, according to the National Conference of State Legislatures. Each differs slightly in the amount and types of taxes an individual or corporation can write-off, as well as eligibility requirements for students.

It's unclear exactly how a federal scholarship tax credit program would be structured. The White House has offered few details on its private school choice agenda, including the $250 million proposal included in the president's fiscal 2018 spending plan.

That being said, President Trump and Secretary of Education Betsy DeVos have spent a lot of political capital touting Florida's scholarship tax credit program: Trump called out Denisha Merriweather in his joint address to Congress last month, applauding the young woman who received a school voucher from the Sunshine State's program to attend a private school and eventually became the first member of her family to graduate from high school and college. Days later, Trump and DeVos visited a Catholic school in Orlando, where hundreds of students attend the school using a voucher from the state's tax credit scholarship program.

Florida's program, which was first implemented in 2001 under former Gov. Jeb Bush, allows corporations to apply for a tax credit to be applied to income tax, sales tax, some excise taxes, insurance premium tax or severance tax. The most common credit, provided for income tax, can be worth up to 75 percent of a corporation's total income liability. The scholarships are disbursed to low-income students who are entering kindergarten or first grade, or who attended a public school the previous school year.

In other states, like Arizona, the program allows both individuals and corporations to claim a tax credit on income, with scholarship funds from individuals going to any student the scholarship-granting organization chooses and scholarship funds from corporations going specifically to low-income students.

In Louisiana and Rhode Island, students' household income must be no more than 250 percent of the federal poverty level, or $60,750 for a family of four, and in Iowa and Virginia it must be no more than 300 percent, or $72,900 for a family of four. Students in Pennsylvania qualify if their family income is $60,000 or less. Many states peg eligibility to whether a student qualifies for free or reduced-priced lunch.

In New Hampshire, any student attending a public school qualifies for a voucher from the program, so long as 40 percent of the vouchers are targeted to students who qualify for free and reduced-priced lunch.

Most scholarship tax credit programs have a cap on the total amount of tax credits awarded so that policymakers know and can plan for state revenue that's lost as a result.

The legislative proposal floated by Sen. Marco Rubio, R-Fla., and Rep. Todd Rokita, R-Ind., would allow for a maximum tax credit of $4,500 for students whose household incomes do not exceed 250 percent of the federal poverty level. It would allow corporations a tax credit up to $100,000 for contributions to scholarship granting organizations, which would be required to distribute 90 percent of their total donations.

The administration's private school choice agenda is a major part of making good on promises by Trump and DeVos to give students in chronically failing schools additional education options.

But Democrats have been quick to criticize scholarship tax credit programs, as well as other private school choice proposals, and are likely to put up a fight over any private school choice proposal contained in a tax reform bill. Just last week Sen. Patty Murray, D-Wash., and top Democrat on the Senate education committee, sent a memo to her caucus outlining a case against private school choice policies.

"These programs rely on non-profits and are often used to skirt state constitutional requirements that prohibit funds from being used to subsidize religious entities," she wrote of scholarship tax credit programs specifically.

A proposal could under come under fire by Republicans who represents rural areas, as students there typically have no other educational options outside the public school system. That issue was at the heart of DeVos' contentious confirmation process, as Republican senators from Maine and Alaska refused to support her nomination.

While it's unclear how quickly the administration and Congress will move on an admittedly ambitious overhaul, policy experts expect to have a better sense of the proposal in the coming weeks.

Copyright 2017 U.S. News & World Report

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