Nebraska legislators are considering a proposal that would establish Opportunity Scholarships, a tax-credit scholarship program (TCS) in the Cornhusker State. Tax-credit scholarship programs allow qualifying families to pay for tuition and fees at private and parochial schools, as well as at a public school located outside of the student’s school district, using scholarships provided by donors, who, in return, receive tax credits.
Under the proposed program, nonprofit organizations, after receiving approval from the state, would be eligible to grant scholarships to children from families whose household incomes are less than 200 percent of the level necessary to qualify for the federal free and reduced-price lunch program.
Beginning in calendar year 2019, individuals would donate to these nonprofits in exchange for a 100 percent tax credit, up to $10,000 for married joint-filers and $5,000 for all other filers. Partnerships, limited liability companies, estates, and trusts would receive a credit up to $50,000. Corporations would receive a credit up to $100,000, not exceeding 75 percent “of the annual limit for such calendar year.” Also, “any amount of the tax credit that is unused may be carried forward and applied against the taxpayer’s income tax liability for the next five years immediately following the tax year in which the credit is first allowed.”
The total cap on donations would be $2 million for 2019, when the program would take effect. However, the state Department of Revenue can increase this cap by 20 percent annually if donations exceed 95 percent of the capped limit, up to $10 million.
A TCS differs from other school choice options in two significant ways. First, the money a TCS uses comes entirely from private sources. This allows a TCS program to avoid state or federal prohibitions against sending money to religious institutions. Second, these programs offer the “cleanest” school choice option, meaning the one with the least burdensome government regulations, because they are not funded by tax collections. Currently, with 21 different programs in 17 states and more than 1.2 million scholarships granted, TCS programs are the most popular form of private school choice in the country.
A study released in October 2016 by EdChoice “estimates the fiscal effects” of 10 of the nation’s 21 TCS programs (comprising 93 percent of all awarded scholarships). It found TCS programs have saved “state governments, state and local taxpayers, and school districts” between $1.7 billion and $3.4 billion through 2014. This comes out to between $1,750 and $3,000 saved per student. The savings in the 2013–14 school year alone, the last year available for study, were between $320 million and $580 million.
The EdChoice audit also found the cumulative savings of the programs studied grew every year with the expansion of the programs, with the three largest programs accounting for close to 75 percent of all savings. The savings in the 2013–14 school year alone, the last year available for study, were between $320 million and $580 million.
Currently, private school choice in Nebraska is literally nonexistent, so enacting a TCS program, even one with the limited funding and reach as has been proposed, would be a great first step for the Cornhusker State, and would give low-income Nebraska families a greater opportunity to meet the unique education needs of their children. When parents are given the opportunity to choose, every school must compete and improve, which gives more children the opportunity to attend a quality school.
The following documents provide more information about tax-credit scholarships.
School Choice Fallacies: Disproving Detractors’ Allegations Against Tax-Credit Scholarship Programs
This report from Martin Lueken and Michael Shaw at EdChoice examine tax codes to address claims alleged by school choice detractors, such as: Tax-credit scholarship programs lead to “profit,” “double-dipping,” “get-rich schemes,” and “tax shelters” for donors.
The Tax Credit Scholarship Audit: Do Publicly Funded Private School Choice Programs Save Money?
In this audit, EdChoice Director of Fiscal Policy and Analysis Martin Lueken updates previous work examining the fiscal effects of private school choice programs on state governments, state and local taxpayers, and school districts. Lueken’s report analyzes savings from tax credit scholarship programs, which allow individuals and businesses to reduce their state tax liability by making a private donation to a nonprofit organization that provides scholarships for children to attend private schools of their choice. This audit looks at 10 tax credit scholarship programs operating in seven states between 1997 and 2014. These 10 programs serve 93 percent of all students participating in tax credit scholarship programs nationwide.
The Effects of Statewide Private School Choice on College Enrollment and Graduation: Evidence from the Florida Tax Credit Scholarship Program
This study from Urban Institute scholars Matthew Chingos and Daniel Kuehn shows Florida’s Tax Credit Scholarship Program boosted college enrollment for participating students by 15 percent, with students enrolled in the program for four or more years seeing a 46 percent hike.
A Win-Win Solution: The Empirical Evidence on School Choice (Fourth Edition)
This paper by EdChoice details how a vast body of research shows educational choice programs improve academic outcomes for students and schools, saves taxpayers money, reduces segregation in schools, and improves students’ civic values. This edition brings together a total of 100 empirical studies examining these essential questions in one comprehensive report.
2016/17 School Choice Report Card
This report card published by the American Federation for Children scores 27 active non-special-needs voucher, scholarship tax-credit, and education savings account programs against ideal standards for program quality. The report is an excellent tool policymakers and researchers can use to help improve education programs and maximize student participation.
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 subject, visit School Reform News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.
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