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Who Benefits From Tax Breaks for Private School Scholarships? A New GAO Report Breaks It Down

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More states are using tax breaks to incentivize donations to private school scholarship programs, and a new Government Accountability Office report analyzes what kind of students and donors benefit from these programs.

Tax-credit scholarships are the lesser-known cousins to school vouchers and are also a favored policy of Education Secretary Betsy DeVos. Not only has DeVos been a long-time advocate for tax-credit scholarships at the state level, she has also pushed for creating a similar program at the federal level.

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In a typical tax-credit scholarship program, a state uses generous tax breaks to incentivize businesses or individuals to donate to groups that provide scholarships to students to attend private schools. In addition to rerouting tax dollars to private schools, the programs have been controversial for the tax benefits they create. Donors in some cases can reduce the amount they pay in taxes below what they donated to the scholarship program in the first place.

However, that all might change under a new rule proposed by the Treasury Department and the IRS. Tax-credit scholarships have been swept into a showdown over the new GOP tax law between blue states and the Trump administration.

What the GAO Found

At the request of Sens. Patty Murray, D-Wash., Ron Wyden, D-Ore., and Sheldon Whitehouse, D-R.I., the GAO examined 22 tax-credit scholarship programs in 18 states. All told, these programs awarded more than $856 million during the 2016-17 school year, the most recent year for which data were available.

Among the report's findings:  

  • Most tax-credit scholarship programs base scholarship amounts on household income;
  • Seventeen programs have income limits for participating families;
  • Those limits range from $32,000-$136,500 per year for a 4-person household;
  • Income limits exceeded their state's median income in six of the 17 programs;
  • Other eligibility requirements include disability status and whether students are zoned to a poorly-performing public school;
  • Donors receive a dollar-for-dollar tax credit on the donations they make in half of the programs;
  • Donors can "recommend" their donations provide scholarships to specific students in four programs;
  • Sixteen states cap the amount of tax credits individual donors can claim in a year.

Overall, the report says that states don't provide much data on the income of participating families. And of those states that did provide data, they collect and report it in varying ways.   

The report also discusses under which scenarios donors could claim both state tax credits and federal deductions on the same donation and lower their tax liability by more than the amount they donated. However, as the report notes, that could change depending upon whether the proposed IRS rule goes into effect in its current form.

You can read the full GAO report here: Requirements for Students and Donors Participating in State Tax Credit Scholarship Programs.

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