The EFTC works differently at every step. Instead of the government spending public money, the EFTC encourages private individuals to donate to scholarship granting organizations (SGOs). In return, the donor receives a dollar-for-dollar tax credit of up to $1,700 on their federal tax return.
The SGO—a nonprofit—then uses those private donations to award scholarships to eligible families. Those families can use the scholarships for tuition, tutoring, special needs services, curriculum materials, transportation, technology, and other K–12 educational expenses.
The money never passes through a government agency. It goes from a private donor to a nonprofit to a family.
Yes, this is exactly why the whole dodge was created in the first place. If you've ever wondered why anyone would create such a convoluted method of funding, the answer is that it was designed to work around pesky laws that forbid giving public tax dollars to private (religious) entities. The government didn't actually touch it, so voila!-- it isn't taxpayer-funded government money!
It is not hard to understand why this is bullshit. Let me offer two examples.
Example 1 (Civilian): Your brother owes you $100. Your spouse tells you to go collect that money, and under no circumstances are you to buy beer with it. You go to your brother's house and tell him, "Look, just give me $50 and two cases of beer and we'll call it even." You go home with your $50 and your beer. "You spent $50 on beer!!" says your spouse, angrily. "I did not," you reply righteously. "The $50 never touched my hands, therefor I did not spend it on beer." What are the odds this explanation will satisfy your spouse?
Example 2 (Lawyerly): The Kentucky Supreme Court threw out that state's attempt at a tax credit voucher, noting exactly where the tax credit argument fails. “The money at issue cannot be characterized as simply private funds,” they wrote, “rather it represents the tax liability that the taxpayer would otherwise owe.” Kentucky's constitution, like many others, specifically forbids the spending of taxpayer funds on private (religious) schools. So the court found“ the funds at issue are sums legally owed to the Commonwealth of Kentucky and subject to collection for public use including allocation to the Department of Education for primary and secondary education” and reallocating them to private school tuition is unconstitutional.
Also, since EFTC dollars are tax credits, that means the taxpayer will give the money to the SGO and might then collect it as a tax return from the government, so technically, the government will lay its hands on these funds.
But Schultz really, really wants you to see things differently. He even has a FAQ space for the issue, starting with "Is the Education Freedom Tax Credit a voucher?" No, because vouchers use public tax dollars and the EFTC "incentivizes private donations." Which serves his purposes better than saying the EFTC allows you to give your federal tax liability to a private school via the SGO pass through.
Does the EFTC take money from public schools? This is one thing the federal voucher has over state vouchers-- the cost in lost revenue can just be added to the federal deficit. Yay? Of course, transferring students out of public schools will still cost those schools money and resources.
Can EFTs be used only for private school tuition? Of course not-- like ESA style vouchers they will be useful for any education-flavored you might come up with. Or, as demonstrated by Arizona, they might be used for all sorts of stuff that isn't actually education-flavored at all.
What is a scholarship-granting organization? AFC mentions the part where an SGO launders the money and hands it off to families. They skip over the part where the SGO gets to keep as much as 10%, allowing SGO outfits like American Federation for Children Scholarship Fund stand to make a nice chunk of change.
The web page gives a pretty clear and direct presentation of the view that EFTC supporters are trying to pitch. The one notable surprise is the degree to which they kind of throw state voucher programs under the bus by turning them into Brand X for comparison purposes.
AFC is swimming upstream here. Everyone understands that the federal vouchers are, in fact, vouchers. Some supporters try hard to use "scholarships" (which is a term that tested much better with audiences) or lean on the tax shelter credit aspect, but most everyone who writes and talks about these calls them vouchers, because that's what they are.
They repurpose government funding for the use of private (religious) institutions. That's a voucher. Trying to wave a bunch of smoke and mirrors and incantations around the actual mechanics or the repurposing doesn't change a thing. A rose by any other name smells as sweet, and a voucher by any name still smells bad.
