DeVos’ Tax-Credit Scholarship Proposal Deserves Serious Consideration

DeVos’ Tax-Credit Scholarship Proposal Deserves Serious Consideration
AP Photo/Jose Luis Magana

After more than two years as Secretary of Education, Betsy DeVos has finally launched a major proposal to encourage school choice from the federal level. Introduced last week by DeVos, along with Representative Bradley Byrne (R-AL) and Senator Ted Cruz (R-TX), Education Freedom Scholarships (EFS) would provide $5 billion in dollar-for-dollar federal tax credits to individuals and businesses who contribute to state-approved scholarship granting organizations (SGOs).

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To be sure, this is an unapologetic federal effort to promote school choice. However, the proposal doesn’t take the form most might expect. It wouldn’t involve vouchers, divert money away from public schools, or create any new federal program. While a tax credit may seem like a convoluted approach, it is thoughtfully designed to avoid substantive critiques from the left and right and still substantially bolster school choice. 

The proposed EFS would be driven by a new, non-refundable federal tax-credit to encourage individuals and businesses to donate to scholarships for elementary and secondary students. The tax credit creates an incentive to donate to state SGOs, but limits additional federal involvement or regulation. This approach means the Department of Treasury would be at the helm, and avoids creating a federal program which would need to be overseen by the Department of Education (ED).

By design, states would do the heavy lifting to delineate and regulate the scholarships. States would opt in by identifying SGOs eligible to receive donations, and would have considerable responsibility and flexibility to determine eligibility for students, education providers, and scholarship uses within their jurisdictions. 

As might be expected, DeVos’ proposal was immediately dismissed by the left as an attack on public schools. More surprising was the quick dismissal from some school-choice supporters on the right, who fear federal involvement in choice will inevitably end in federal intrusion in private schools and existing state choice programs.

Certainly, ED’s track record for overreach gives plenty of basis for the concerns of some conservatives. However, the proposal’s conservative authors are similarly wary and have carefully structured EFS to insulate states from federal overreach. By keeping the program in Treasury, ED’s role would, at most, be in maintaining the $5-billion cap and its distribution across states. There’s always the possibility that, in the future, Congress could change the law in ways that would allow federal overreach, but states would always have the choice to opt out.

The right’s quick dismissal also undervalues EFS’ potential benefits. The 18 states that currently have tax-credit scholarships could be substantially subsidized by EFS, which many desperately need. While traditional public schools draw from local, state, and federal funding, these state programs only draw on state funding, and many are too small to benefit the low-income families they are targeted towards. Even so, these programs have demonstrated benefits for students, and EFS could be the shot in the arm that underfunded programs need in order to deliver more support to these students. In this way, EFS would not only insulate, but complement state-driven school choice.

From the left, the quick dismissal of DeVos’ proposal as an attack on public schools is simply mistaken. While the tax credit would forgo revenue from federal coffers, it certainly would not draw on dollars headed to public schools. EFS would be no more in competition with public-school funding than would investments in highways or defense expenditures. And while it would support private school choice in some states—as states have the responsibility and flexibility to set the contours of the programs—it could just as easily be used to drive educational options that are much more popular on the left.

For instance, California could use EFS to fund pre-K scholarships for low income students. That’s hundreds of millions of dollars that California preschoolers would be hard-pressed to get from a constrained state budget. States could also use scholarships to supplement public school programs, to pay for dual enrollment tuition or transportation to regional CTE training centers—state-identified educational opportunities that are currently out of some students’ reach. Those on the left may view such benefits as not worth granting the Trump administration a victory on school choice, but the benefits to states are significant enough to carefully consider that cost.

EFS is a strong and careful start towards limited and circumscribed federal support for state SGOs, but it does have imperfections. For instance, it allows federal tax-credit scholarships to fold in state programs that do not currently involve state tax credits. This may be too aggressive, because it would mean EFS is depending on states to regulate SGOs in which they have no stake. Adding a requirement that state tax-credits must also be established for any programs that receive federal tax-credits would guarantee states have some skin in the game—enough to ensure the regulatory framework is sensible and sustainable.

The $5 billion should also be allocated differently than is currently proposed: proportional to participating states’ Title II-A formula shares. This introduces long-run sustainability issues if more states opt in in future years, which would require that early adopters lose a proportion of their cap, or that the $5 billion allocation would have to increase. Instead, allocating the $5 billion in tax credits proportionately across all states—where only participating states draw down their portion of the total—would be a more modest, but sustainable approach.

Fortunately, we are on the front end of developing this legislation, so these and other refinements might be incorporated along that path, but it’s a path that quick critics on the left and right should be willing to take.

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