More Federal Intervention in Education

President Trump’s One Big Beautiful Bill Act (OBBBA), a budget reconciliation bill that passed the Republican-controlled Congress and was signed into law on the Fourth of July, includes a number of provisions related to income taxes that can be considered “good,” as far as bills go.

The OBBBA extends certain provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of 2025. It increases the standard deduction, introduces an extra standard deduction for seniors, exempts from income tax earnings from overtime and tips, introduces a charitable deduction for taxpayers who take the standard deduction, raises the child tax credit and makes it permanent, increases the State and Local Tax (SALT) deduction, introduces a deduction for car loan interest payments, and raises the estate tax exemption.

Tax deductions are always a good thing because they lower one’s taxable income and therefore the amount of taxes owed to the federal government. Thus, it doesn’t matter what the deductions are for, what the amounts are, whom they benefit, or why they were instituted. Tax credits are even better because they are dollar-for-dollar reductions in the amount of income tax owned. Again, it doesn’t matter what the credits are for, what the amounts are, whom they benefit, or why they were instituted.

But not all tax credits are created equal.

Among the many other things contained in the OBBBA, some are good and some are bad. It is a good thing that the OBBBA expands federal work requirements for able-bodied recipients of food stamps, institutes federal work requirements for able-bodied recipients of Medicaid, and tightens Medicaid eligibility requirements, because it means that fewer people will be eligible to receive welfare. However, it is a bad thing that the OBBBA includes a $5 trillion increase in the debt ceiling.

But what are we to make of the little-known provision in the OBBBA that creates the nation’s first private federal tax-credit-based school choice program?

The Educational Choice for Children Act (ECCA), section 70411 of the OBBBA, contains a new federal tax credit for contributions to nonprofit organizations — called scholarship granting organizations (SGOs) — whose primary mission is to provide scholarships to eligible students to attend qualified private schools.

According to CliftonLarsonAllen (CLA) consultants:

• Individuals may claim a nonrefundable federal tax credit of up to $1,700 for cash contributions to SGOs.
• The credit is dollar-for-dollar against federal income tax liability.
• The amount allowed as a credit shall be reduced by any state credit allowed.
• Contributions cannot be earmarked for specific students.
• SGOs must operate in states that opt in to the program.
• Unused credits may be carried forward for up to five years.

The program begins in 2027. States must opt into the program. Nebraska recently became the first state to elect to participate in the program. Scholarship amounts received are not included in gross income for federal tax purposes. Scholarship funds can be used for tuition, fees, supplies, and equipment to attend K–12 private schools or homeschools.

A qualified SGO must:

• Be a 501(c)(3) organization exempt from tax under Section 501(a) and must not be a private foundation.
• Operate exclusively within the state where donations are received.
• Provide scholarships to 10 or more students who do not all attend the same school.
• Not comingle qualified contributions with other funds.
• Allocate not less than 90 percent of revenue to scholarships for eligible students.
• Avoid earmarking contributions to specific students.

Eligible students must “be a member of a household with income not greater than 300% of the area’s median gross income” and “be eligible to enroll in a public elementary or secondary school.”

So, what’s not to like? Donors receive a tax credit, and parents receive private money to educate their children at a school of their choice. But all is not what it seems.

First of all, notice what this new tax credit is not. It is not a tax credit for parents who pay private-school tuition for their children. That would certainly be a simple, easy, and welcome tax credit. It would be simple to understand and not complicate the tax code. It would be easy to implement with just a few sentences. And it would give welcome relief to taxpayers who send their children to private schools but — directly or indirectly — also pay property taxes to support local public schools that their children do not attend.

And secondly, notice what this new tax credit is. It is a roundabout way for the federal government to further intervene in the education market and have its own educational voucher program. Education is the purview of state governments. Every state has a provision in its constitution for free public K-12 education (whether they should or shouldn’t is not under consideration here). Many states also have private school choice programs in the form of education savings accounts (ESAs), voucher programs, or tax-credit scholarships. The Constitution nowhere authorizes the federal government to have anything to do with education.

A peculiar thing about this new tax credit is that the federal government is giving someone a tax credit only if they donate to a particular charitable organization. Right now, taxpayers can take a deduction for money or property donated to any “qualified” organization, which means most religious or nonprofit organizations.

The problem with the ECCA is the same problem with almost every private school choice program: parents do not pay the full cost for their children’s education.

Now, there is nothing wrong with a truly private educational voucher program funded entirely and voluntarily by individuals, organizations, or corporations without any government rules or oversight.

Education is a service that should be provided on the free market by private entities. It is an illegitimate purpose of government to establish public schools or provide educational services to anyone, and there is nothing inherently unique about education that necessitates that the government provide it. But it’s important as well to note that education should not be funded by the state. Neither the federal nor the state governments should fund education in any way, even if they are not involved in the operation or regulation of schools.

In the end, it all comes down to this: Parents are responsible for the full cost of their children’s education. No American should be forced to pay for the education of anyone else’s children.

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