SPECIAL REPORT: Investigation into scholarship tax programs

Posted at 11:37 AM, Jul 07, 2017
and last updated 2017-07-07 11:37:26-04

A school choice program championed by the trump administration paves the way for thousands of public school students to attend private school. They're called scholarship tax credit programs and they are gaining popularity in states across the nation. But critics argue they give huge tax benefits to wealthy donors and are reducing state revenue to help fund state services - including public schools. Angela Hill from our Scripps Washington Bureau digs deeper to see who's “gaming the gift."

Scholarship tax credit programs give parents a choice.

"He's in a school where he can go to church."

To move their child from public school to attend private school instead. 

"The scholarship allows them to make that choice without financial burden."  

But critics argue donors are funding these programs for profit. And draining state coffers."   

"There will be less funding for public schools, healthcare, public safety."

"It's just like a totally different experience."

After Dibye Bass' 12-year-old son was bullied in a Virginia public school, she applied and received a scholarship so he could attend a catholic school instead.   

A good spiritual experience. A strong educational background."

Scholarship tax credit programs were primarily designed to give low income families and children in failing public schools a choice. But they also give generous state tax credits to those who donate to a scholarship granting organization, reducing donors' taxes, sometimes dollar for dollar.

17 states have these scholarship programs including Virginia where Dr. Jennifer Bigelow is a Superintendent of Schools for the Diocese of Arlington. 

"It's about supporting schools and students and making a difference in their lives."

Their foundation is a scholarship granting organization or SGO that raises money from donors.  

"They might not otherwise donate without this credit, i think it really can be a win-win for both systems."  

These programs are more lucrative than giving to most other charities where you only get a tax deduction, not an additional tax credit.  

"What we're seeing is individuals turn a profit by stacking state credits and federal deductions together on a single donation and that gets them more in tax cuts than they ever donated in the first place."

Carl Davis is a senior tax expert with the institute on taxation and economic policy. He says in at least 9 of the 17 states donors can potentially make a profit.

For example, in Alabama with a max donation of $50,000 - donors  not only get their $50,000 back in a tax credit, they also get a federal tax deduction worth at least $13,000 dollars ultimately paying $63,000 dollars less in taxes, resulting in a $13,000 dollar profit over what they donated in the first place.

And we found numerous websites promising big returns.

Like these sites in Georgia, it says the state pays you to donate.

And this one - Your donation can make you money.

And this Virginia site breaks it down, for a $10,000 dollar gift, donors get $10,960 dollars in tax savings.

Our investigation found from 2012 to 2016 these states have dolled out at least $2.5 billion dollars in tax credits. And that's less money being spent on state programs including public schools. But supporters say critics are missing the point.

"I see it as something to encourage you to give more. Not just for a tax break, but because you're doing something good."  

There's a push on Capitol Hill to expand this program nationally. With two bills pending in congress and with the president proposing $9.2 billion dollars in education cuts, many are concerned about fate of public education. 

While our state does not currently have a tax scholarship program, they are increasing in popularity and as Angela mentioned, could be expanded at the federal level.  To learn more about these programs, click here.