Tax Credit Scholarships Can Help Kids and Save Money

Today we’re releasing a paper I co-authored with Marty Leuken, Director of Fiscal Policy and Analysis at the Friedman Foundation for Educational Choice. The paper estimates the fiscal impact of a hypothetical $50 million tuition tax credit scholarship program in the state of Missouri.

We’ve been talking about scholarship tax credits here at the Show-Me Institute for some time now, but for those who might be new to the topic, such a program would give a tax credit to individuals or organizations that donate to a nonprofit that grants scholarships to K-12 students. That is to say that (with a 100% credit) if you owe the state of Missouri $1000 but you donate $1000 to a scholarship-granting organization, you would pay zero in state taxes. There are currently 21 tax credit scholarship programs in 17 states across the country educating almost 225,000 students.

We estimate a variety of results based on different assumptions about how many students might participate and how many scholarships would be offered, but the long and the short of it is that most likely such a program would save states and districts money.

How is this possible? It is actually pretty straightforward. As long as the value of the scholarship that students receive is less than what the state currently spends per student, the state will come out ahead. Given the structure and uptake rates of similar programs around the country, this is the most likely scenario for Missouri. Additionally, while districts would receive less funding from the state if children leave public schools to take advantage of scholarship opportunities, districts will also have fewer students to educate, which has the opportunity to have more money, per pupil, remain in district coffers.

Scholarship tax credits are controversial, but they really shouldn’t be. Structured appropriately, they can give students better options and save money at the same time. Families win, schools win, taxpayers win. It’s a slam dunk.