The Fiscal Effects of a Tuition Tax Credit Program in Missouri

A tuition tax credit program has been proposed for Missouri to address education inequality among low-income families. The terms of this program would grant Missouri taxpayers a credit on their state income tax bills for contributions to scholarship-granting organizations (SGOs) — not-for-profit education groups that are recognized by the state. In turn, SGOs would use these contributions to provide private-school scholarships to grade-school students who meet eligibility criteria set by the Legislature. During the past decade, four states have implemented similar programs. In this study, we show that other states have adopted education tax credit programs in order to help reduce inequality of educational access among low-income families, by making private-school alternatives much more affordable. The fiscal cost of a tuition tax credit program will depend on the number of parents who move their children from public schools to preferred private alternatives. This study assesses how the size of available scholarships would affect state educational spending at various levels of demand. Under the conditions we consider, a tuition tax credit program has the potential to save the state $7 million per year. Savings from a partial tax credit, in which taxpayers receive less than a dollar-for-dollar match on their contributions, may be as high as $17 million. For the purposes of this study, we use the parameters set in the most recent Missouri tax credit bill; i.e., it would be capped at $40 million annually and would fund scholarships to students in the Kansas City, Saint Louis, and Wellston school districts who reside in households with incomes lower than or equal to 185 percent of the federal poverty level.1 Approximately 92,700 students in these districts meet the financial eligibility limits, 9.4 percent of whom currently attend private schools.

Related Links