Tax credit scheme ‘more like money laundering’

Secretary of Education Betsy DeVos will reportedly unveil a proposal for federal private-school scholarship tax credits Monday in Indianapolis. That makes a recent report on the topic especially timely.

The report, “Public Loss, Private Gain: How School Voucher Tax Shelters Undermine Public Education,” was released last week by AASA the School Superintendents Association and the Institute on Taxation and Economic Policy. It describes how 17 states, including Indiana, divert $1 billion to tax credits for contributions to private K-12 schools, including religious schools.

Remarkably, nine states provide a 100 percent tax credit for the scholarship donations. Taxpayers who make such donations get back every penny from the state, tax-free. Some can even make a profit on their contribution by claiming an additional deduction on their federal taxes.

Report co-author Carl Davis said that, in those states, donors may not even have a charitable interest in private schools or their students. It’s simply a risk-free scheme to make money while, in some cases, getting around prohibitions on public funding of religious schools.

“I don’t see how you can help but draw the parallel to money laundering,” Davis told Jennifer Berkshire and Jack Schneider in an episode of the “Have You Heard” podcast devoted to the tax credits. “It’s certainly more like money laundering than charitable giving. There’s no charity involved.”

Indiana’s scholarship tax credit is 50 percent; in other words, a taxpayer who donates $1,000 gets back $500, plus any savings from a federal deduction. There is no limit on the size of an individual’s state credit. There is an annual cap on the total tax credits the state will award, but the legislature voted last month to increase it: from $9.5 million this year to $12.5 million next year and $14 million the year after. Continue reading

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