Research & Commentary: Designing Tax Credit Scholarships

Published June 5, 2012

The New York Times published an article in May purporting to indict tax credit scholarship programs with evidence some scholarship-granting nonprofits were poorly and unethically managed. The paper charged tax credit scholarship programs in Georgia and Pennsylvania, particularly, abused funds previously destined for public coffers, using them to give “kickbacks” in the form of scholarships to families who managed to find more donors for the program, allowed private schools to lure away good athletes, and so forth.

Critics of these programs immediately cited the article in calling for an end to tax credit scholarships and for regulating participating private schools as closely as public schools. They replayed their criticisms of programs that give individuals a tax break for donating to these private charities because fewer students might attend government-controlled schools.

Reform advocates noted the unethical behavior was limited to a handful of isolated incidents that were already largely prohibited under current accountability mechanisms and state tax codes. They agreed tax credit programs must be designed to minimize fraud and abuse, but they also noted such problems regularly occur in public school systems and are a function of human nature. They point out the article failed to recognize many private scholarship organizations had already corrected such unethical behavior on their own, and it ignored legal decisions from every court that have found these programs operate strictly on private funds just like any other charity.

Available data show low-income families are the primary beneficiaries of tax credit scholarship programs and these programs benefit state treasuries. When designed and implemented properly, a scholarship tax credit program is a constitutional, popular, and fiscally sound method for increasing education options for low-income families. A system that maximizes individual choice over one’s own money and the education of one’s children is most likely to quickly address fraud and offer better options to more families.

The following articles offer more information about the credibility of tax credit scholarships and good legislative program design to reduce fraud.


Public Money Finds Back Door to Private Schools
While tax credit scholarships have helped many children whose parents would otherwise have to scrimp or work several jobs to send them to private schools, execution has not been perfect. They have been used to attract star football players, expand nonprofit scholarship groups’ payrolls, spread creationism, and steer money to legislators’ favored schools, the New York Times argues. It reported anecdotes of such incidents, mostly from Georgia and Pennsylvania.

Tax Credit Scholarships Need a Critical, Not Hostile, Eye
The New York Times article targeting tax credit scholarships shows a deep hostility to private dollars and private action, write Chester Finn Jr. and Adam Emerson in Education Next. It also ignores the existing accountability mechanisms that work well in states such as Florida and are more appropriate than simply eliminating the programs. Some state tax agencies, for example, already are required to conduct audits to catch unethical behavior, and state and national private school associations could offer private monitoring and auditing to members.

Program Design Is Crucial for Tax Credit Scholarships
In light of the New York Times screed against tax credit scholarships, John Kirtley of the American Federation for Children discusses smart program designs that avert abuses of taxpayer dollars. He includes five components for good tax credit scholarship law: means-testing, scholarship portability, testing recipients, fiscal accountability for scholarship-granting nonprofits, and fiscal accountability for schools that receive a large amount of scholarship funds.

Tax Credit Policy Design for School Choice
Given the controversy about how best to design an education tax credit scholarship program to maximize parental choice while allowing for the least fraud and cronyism, Andrew Coulson of the Cato Institute discusses research into credits and vouchers to ascertain whether more regulation is the best answer and whether states should allow only one scholarship-granting organization. He concludes the best design would allow for many SGOs and regulate them according to existing law with better follow-through, not interfering with the private schools that receive the funds.

School Choice Movement Can’t Give Grenades to Opponents
It is extremely difficult to pass school choice legislation like tax credit scholarships, writes John Kirtley for RedefinEd, which means school choice proponents and related organizations must be as far as possible above reproach and carefully audited. He gives examples of different qualifiers to place on such programs given the hostile political and media environment many state legislators face, such as requiring that parents be allowed to take their child’s scholarship to any school and that scholarship-granting organizations not be allowed to specify only one religion’s schools for support.

New York Times’ Hit Job on Tax Credits
The New York Times article that attempted to “expose” tax credit scholarships based its conclusions on isolated anecdotes and flawed logic that do not reflect reality, writes Jason Bedrick for Education Next. Available data show low-income families are the primary beneficiaries of tax credit scholarship programs and these programs benefit state treasuries. Additionally, the U.S. Supreme Court and every state supreme court to address the question have rejected the notion tax credit scholarship programs entail the use of “public money.” When designed and implemented properly, a scholarship tax credit program is a constitutional, popular, and fiscally sound method for increasing education options for low-income families.

Scholarship Tax Credit Programs in the United States and their Implications for New Hampshire
Tens of thousands of low-income New Hampshire students have only one choice of school because their families cannot afford to move into neighborhoods with better public schools or pay private school tuition, observes Jason Bedrick in a policy study for the Josiah Bartlett Center. He surveys the state of tax credit scholarship legislation, explains how tax credit scholarships benefit children, families, taxpayers, society, and state budgets, and discusses good design for new programs based on the experience of other states.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the School Reform News Web site at, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at

If you have any questions about this issue or The Heartland Institute, contact Heartland education policy research fellow Joy Pullmann at 312/377-4000 or [email protected].