Tax Credit “Scholarship” is Not Philanthropy

March 23, 2017 |

Shell Game Rigged So Private Schools Win, Taxpayers Lose

Proponents of sending taxpayer funds to private schools in the form of tax credit scholarships are like old-fashioned card sharks – they want to distract you with their fast talk so you can’t follow the money. But the key to not being fleeced in a game of three-card monte is to understand the sleight of hand behind the trick.

Voucher proponents say they are simply encouraging public-minded insurance companies to “contribute” to “scholarships” to pay tuition for students to attend private schools. All the language is poll-tested and calculated to invoke notions of charity and philanthropy.

What they don’t tell you is that you and other taxpayers pick up the tab.

To avoid the bait and switch, you need to know the difference between a tax deduction and a tax credit.

Tax Deduction

A tax deduction reduces taxable income by an amount equal to the taxpayer’s marginal tax rate. If the taxpayer contributes $1000 and has a 25% marginal tax rate, the $1000 deduction reduces the taxpayer’s taxes by $250.

Tax Credit

A tax credit is a dollar-for-dollar reduction of tax liability. A $1000 tax credit reduces your tax liability by $1000. The government effectively pays for the behavior incentivized by the tax credit through the tax code.

A tax deduction for a charitable contribution reduces your taxable income and results in tax savings equal to the amount of the contribution times your marginal tax rate. If you give $1000 to a charity and are in a 25% marginal tax bracket, the federal government in effect pays $250 of the donation. The real net cost to you as the donor is $750.

By contrast, a tax credit is a dollar-for-dollar reduction of tax due, not a reduction of taxable income. If a corporation contributes $100, $1 million, or $5 million to the voucher program, the state reduces the company’s insurance premium tax bill by the full amount. That’s the difference between a tax credit and a tax deduction—the state absorbs the entire cost of a tax credit in the form of foregone tax revenue. The corporation has effectively “contributed” nothing. The economic effect is no different from the state writing a check using taxpayer funds to a private school.

The use of tax credits to reimburse donations for private school tuition is a shell game. It is intentionally designed to mislead the public by making a government subsidy for private schools funded through a corporate tax break look like philanthropy.

Just like in three-card monte, this shell game is rigged through gimmicks and misdirection to ensure private schools and insurance companies win. Taxpayers are set up as the mark to foot the bill.

P.S. If you oppose vouchers and believe public dollars should remain in public schools, join us! We will never ask you for a donation. Become a supporter today!  


Education Savings accounts and tax credit scholarships are the same ol’ voucher, also known as government subsidies for private schools with no transparency, accountability, or proven results.


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