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The Trump administration’s push to privatize public education not only seeks to deprive traditional K-12 schools of billions in federal aid, but may greatly expand existing tax loopholes that already allow wealthy people and firms to make money on donating to private schools.
The proposed Education Opportunities Act would “put two new federal voucher tax shelters within reach for many more Americans and lead to an explosion in funding for private schools,” a joint release from the School Superintendents Association (ASSA) and Institute on Taxation and Economic Policy (ITEP) said. “It would also keep in place an existing federal loophole that permits savvy taxpayers to benefit from certain ‘double-dipping’ practices, where they receive a federal deduction and state tax credit on the same donation to a private school.”
An accompanying ASSA-ITEP report, “Public Loss, Private Gain: How School Voucher Tax Shelters Undermine Public Education,” contains stunning examples of how private schools already offer major tax benefits to donors unlike anything in the public school universe. Should they be expanded, it’s possible that funding sources for traditional K-12 schools would shrink even more than they have in recent years, the report predicted.
“Although proponents maintain that tuition tax credits do not involve public money, in reality these credits are a roundabout way of providing public funding to private schools,” the report said. “Instead of directly funding private school scholarships, the government reimburses wealthy taxpayers (with tax credits and deductions) in return for providing funding to private schools on the state’s behalf. The end result is the same as under a direct voucher program: a boost in resources for private schools and a reduction in resources for public education.”
Private schools already advertise the double-dipping benefits for individuals and corporations. Here are some examples from the ASSA-ITEP report:
A K-12 private school in Georgia, the Wood Acres School, has a webpage promoting the Georgia tuition tax credit program. On the website, they write that donors can “profit up to 29% on the amount donated.”
A wealth-management firm in Virginia, Marotta Wealth Management, describes to clients how a donation to the Virginia tuition tax credit program allows taxpayers to “offset the cost of those gifts through tax credits and the avoidance of capital gains taxes.” Using an example of a taxpayer donating stock worth $10,000, Marotta states that “their total [tax] savings amounts to $10,960.60 or 9.60% more than their original donation.”
An accountant with True Wealth Management in Atlanta, Georgia states that “we anticipate taxpayers will exhaust this allocation [of available state tax credits] within the first day. We advise taking advantage of pre-registration NOW by reserving your spot online.” He goes on to explain that, “If you are a taxpayer stuck in Alternative Minimum Tax (AMT), this charitable contribution can make you money! That’s right, AMT filers are ahead by 28% on these contributions.”
For the past three congressional sessions, Sen. Marco Rubio, R-FL, and Rep. Todd Rokita, R-IN, have introduced the Educational Opportunities Act (EOA). It would create a federal tuition tax credit program that expands what is now offered to high-income taxpayers in nine of the 17 states that offer voucher tax credits. “Both legislators hail from states with broad tuition tax credit programs and would like to see a replication of these programs at the federal level with the goal of having their legislation incorporated into a broader tax reform bill if it cannot pass by itself,” the AASA-ITEP report said.
Drilling into the proposal’s specifics, what emerges is what has become typical for the Trump administration and current GOP-majority Congress: vastly disparate and unequal treatment for traditional safety net programs and preferential treatment for their private sector corollary. This is seen in the proposed legislation by the size of the tax credit offered to private school donors.
“By granting a dollar-for-dollar credit, the EOA privileges voucher nonprofits over virtually every type of charity or nonprofit including homeless shelters, veterans’ support organizations, nonprofits serving victims of domestic violence, etc.,” the report said. “When taxpayers donate to most tax-exempt charities they receive a federal tax deduction that could be worth between 10 and 40 cents on each dollar donated. This is a generous tax incentive designed to encourage charitable giving. In contrast, the EOA posits that SGOs [scholarship granting organizations or private schools], are deserving of a far more lucrative benefit: a 100% tax credit on each dollar donated (up to the maximum eligible amounts identified above). If a taxpayer donates one dollar to a SGO, they do not just receive 10–40 cents back, but rather they receive a full dollar back. In effect, this bill provides SGOs with a tax advantage that is many times more generous than what is afforded to other charities.”
The potential impact of such a revenue shift is alarming to the national superintendents’ association with 13,000 members across the country. As has been widely reported, charter schools and private schools have more selective admissions, which in practice, can end up producing more segregated schools and schools that shun special needs students.
“Private schools subsidized via tuition tax credits can reject students who are performing below grade-level, or who have had trouble learning English, or who have a disability,” the report said. “There are few states that prohibit a private school from denying a student admission because of their religion or because they, or members of their family may be gay.”
The private schools can also pay their staff commissions for landing large contributions, a form of self-dealing that is not found in traditional public schools.
“SGOs are also allowed to keep 10% of the funds they receive for administrative costs,” the report said. “For a SGO that receives millions of dollars in donations this 10% administrative set-aside could prove to be quite a windfall. In Arizona, for example, the Arizona Christian School Tuition Organization received almost $73 million in donations from 2010–2014. Using that money, they paid their executive director (who also happens to be the State Senate President) an annual salary of $125,000 and then paid him a further $52,000 to rent office space that he owns, and another $636,000 to his for-profit company for processing donations and applications.”
This kind of self-dealing would be permissible nationwide under the EOA—on top of 10 percent or more that private school donors can make on giving big money to these schools.