Research & Commentary: Scholarship Tax Credits

Published November 11, 2013

Corporate K-12 education tax-credit programs, also known as scholarship tax-credit programs, are becoming a popular school choice option. In 2012 alone, three states established such credits. A total of 11 states are operating corporate tax-credit programs: Arizona, Florida. Georgia, Iowa, Indiana, Louisiana, New Hampshire, Oklahoma, Pennsylvania, Rhode Island, Virginia.

These programs allow corporations to distribute a portion of their owed state taxes to private, nonprofit school tuition organizations that issue “scholarships” to K-12 students. The recipient students can choose from a list of approved private schools or public schools outside of their home district, and apply the scholarship to their tuition.

States vary on which students qualify and are able to apply for these scholarships, but many are limited to low-income families. Another common qualification is that students must be currently enrolled in a public school, although states are expanding their programs to allow children already in private schools to apply. 

Corporate tax credits use no public money and thus are less susceptible to being struck down as violating state Blaine amendments. Tax-credit programs have withstood every lawsuit raised against them. 

Corporate tax-credit programs save states money because private school tuition is normally significantly cheaper than the per-pupil cost of a traditional public school. An analysis of the Florida corporate tax-credit program by a nonpartisan organization (the Office of Program Policy Analysis and Government Accountability) revealed that for every $1 spent on the tax-credit program, Florida taxpayers saved an estimated $1.49. It is important to note that savings require a proper balance between the tax-credit amount and the number of students participating: If not enough students participate in the program and the tax-credit amount deducted for that year is too high, the lost tax revenue will exceed the savings in education funding. 

Tax credits reach a large number of families, supporting more than three times as many low-income children as do voucher programs. Tax credits are a cost-effective, constitutional, and widely supported school choice option that states should consider. 

The following documents offer more information about corporate tax-credit programs for education.

Low-Income Students Gaining with Tax Credit Scholarships, Study Finds
Participation in Florida’s tax-credit program has grown, and participants are gaining academically, according to a new study reported by Sunshine State News. Scholarship recipients reported “modest” math and reading gains. They tended to be among the lowest-performing students at the public schools they left and were more likely to be black and from lower-income families. 

School Choice Yearbook
The Alliance for School Choice issues a “yearbook,” which is a collection of data on school choice programs around the country. The collection breaks down every state’s school choice programs, explains the specifics of each program, and provides basic analysis of educational choice trends and information around the country. 

Continuing Debate Over Scholarship Tax Credits
As tax credits have surpassed growth in voucher programs, this article compares the two school choice options and focuses on the finances and potential and actual savings of the programs. 

School Choice Programs Across the Country
This Center for Education Reform report provides a breakdown of student participation in education scholarship tax-credit programs and funds being contributed and dispersed via the scholarships. 

The Education Investment Tax Credit
The Cato Institute’s model legislation for education tax credits would allow businesses and individuals to claim a tax credit for donations made to a private school scholarship-granting organization or for personally paid private school tuition. In the first year of the program, the credit claimed may not exceed 70 percent of state per-pupil spending for public education. The program is capped in the first year to $150 million of state spending, increasing 25 percent each year the program spends 90 percent or more of its cap. 

Tax Credits
The Independence Institute’s Education Policy Center provides short summaries of each state’s tax-credit program and links to government publications and state statutes. 

Does Competition Improve Public Schools?
Cassandra M.D. Hart and David Figlio report on their study of the impact of Florida’s education tax-credit program on public schools. The data “consistently indicate a positive relationship between private school competition and student performance in the public schools, even before any students leave for the private sector. That is, these results provide evidence that public schools responded to the increased threat of losing students to the private schools.”

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 Joy Pullmann at 312/377-4000 or [email protected].