Vouchers As Tax Avoidance for the Rich

The Institution on Taxation and Economic Policy has released a new brief looking at school vouchers-- specifically the tax credit scholarship version. What they found was a great way for the wealthy to avoid taxes.

ITEP is a liberalish outfit that conducts "rigorous analyses of tax and economic proposals and provide data-driven recommendations to shape equitable and sustainable tax systems" and works "to make the case for raising enough revenue to truly meet all our societal needs" as well as "put forth a vision of a more racially and economically equitable tax system at all levels of government." 

Tax credit scholarships are a set-up on which individuals or, in some cases, corporations can donate money to a "scholarship organization." The organization hands out vouchers to schools --usually religious ones(in some states, each scholarship organization is attached to one particular private school)-- and the financial contributor gets a tax credit. Twenty-one states currently have them. 

Voucher fans like this version of voucher because it lets them pretend that no "government money" is being spent on private religious schools. They're technically correct because the money never touches the government's hands, but, as Kentucky's state supreme court noted when they tossed that state's TCS law out, “The money at issue cannot be characterized as simply private funds, rather it represents the tax liability that the taxpayer would otherwise owe.” In other words, the tax credit money might not be in the government's hands, but those tax credits still leave a hole in the state budget that taxpayers must deal with.

ITEP points out that the benefits for those who use these voucher tax credits don't end with the tax credits themselves. 

One dodge that used to be popular with TCS programs was the charitable donation. In this dodge, I contribute, say, $1,000 to the state's TCS program and so get a $1,000 credit for my taxes. Then I turn around and count the $1,000 contribution as a charitable donation on my federal taxes. Ka-ching.

Well, the charitable donation dodge may be over, but ITEP points out that many just like it are in place. Not just in place, but a big part of the marketing done for tax credit scholarships. The report includes many examples:

The Alabama Policy Institute published a brief pointing out that: “A contribution made from a business owner may receive both the standard dollar-for-dollar tax credit as well as a deductible business expense on the federal side. Essentially, business owners may make money from a contribution.”

Decatur Heritage, a Christian school in Alabama, has a video on its website where the narrator gags after saying the word “tax” and urges businesses to “double dip” with state credits and federal deductions. Its website also describes the maneuver as a way to “make money by giving.”

The Georgia GOAL Scholarship Program touts the “double tax benefit” that results from claiming state credits and federal deductions, made possible by the fact that “the IRS regs are generous.” GOAL says the shelter is “too good to pass up!” and presents an example calculation where a business owner receives a tax cut of more than $33,000 in return for a $25,000 contribution, yielding a net profit of $8,393. 

The Opportunity Scholarship Fund in Oklahoma advertises “BIG tax credits and deductions!” in return for contributing and presents a relatively conservative example where the taxpayer can walk away with $400 more than they initially donated. 

And this one is especially juicy:

Fenwick High School in Illinois points out that “The stock market is still trading near all-time highs! Take advantage of double tax savings by contributing long-term appreciated stock to an SGO (thus avoiding capital gains tax).”

ITEP points out, as you have already guessed, that these kinds of tax maneuvers are not being performed by regular folks who got to H & R Block to get their taxes done. In a close look at Arizona, Virginia, and Louisiana, ITEP finds that the vast majority of these credits are being claimed by folks in the $200,000 and above bracket-- 60% in Arizona, 87% in Virginia, and a whopping 99% in Louisiana. 

Tax credit scholarships are not just one more way to privatize education through school vouchers; they're also a way for the wealthy to avoid taxes and bank a little more money themselves. Ka-ching. 

You can read the full ITEP brief here. It's not long, but it's plenty illuminating.