What are Vouchers and Tax Credit Scholarships?
School vouchers are cheques that state governments send to eligible families, who must endorse the cheque and use it to pay for tuition at a participating private school. The size of the cheque generally depends on the amount of money the state spends on each child in the family’s district (a.k.a “per-pupil spending”).
Tax Credit Scholarships are granted by nonprofit organizations whose sole purpose is to distribute scholarships (sometimes called “scholarship organizations”) to eligible families. Under Tax Credit Scholarship schemes, the state uses tax credits to encourage corporations to donate money to “scholarship organizations” rather than donating state money to parents directly. Using such a tax credit, a corporation that donates 1 dollar to a “scholarship organization” can save up to 90 cents on its corporate taxes.
What are the Benefits of Tax Credit Scholarships?
The primary benefit of tax credits over vouchers is that tax credits use corporate money rather than state money to pay for eligible families’ tuition. Although a seemingly minor detail, some state constitutions have so-called “Blaine Amendments” which prevents state money from being directed to religious schools. Under tax credit schemes, corporate money flows to parents through “scholarship organizations” rather than through the government (even though the government covers the cost by forgoing tax revenue), thereby circumventing “Blaine Amendments.”
Who is eligible for Vouchers or Tax Credit Scholarships?
Different states have different limitations, but there are three common types of requirements:
- Income Limits – Every state with a tax credit scholarship or voucher program limits eligibility to low- or middle-income families (although each state has its own definition of “low-income”).
- Residence Near a Failing School – In many existing or proposed programs, only children who live in a school district with a low-performing public school may receive vouchers or tax credit scholarships.
- Student Transfer Requirements – In many existing or proposed programs, only children who transfer from a public school to a private school may receive vouchers or tax credit scholarships. This requirement generally doesn’t apply to children entering kindergarten or first grade.
