InProgress

from the Center for American Progress

How the OBBBA creates a tax credit loophole to funnel public funds into private schools

(Getty/Jon Cherry)

The Federal Scholarship Tax Credit (FSTC), created by the One Big Beautiful Bill Act, will allow individuals to claim a dollar-for-dollar federal tax credit of up to $1,700 for donations to scholarship-granting organizations (SGOs) that provide K-12 vouchers. This tax credit ultimately works as a loophole for the federal government to subsidize private education using public taxpayer dollars, creating the first-ever national voucher program.

States have little oversight

The rules give SGOs broad authority over which students receive vouchers while limiting states’ ability to impose additional requirements. States cannot prevent SGOs from discriminating based on disability, religion, sexual orientation, or gender identity, or require them to provide vouchers to public school students. They also can’t require additional accountability measures to prevent fraud and abuse, putting students at risk of being targeted by fraudulent companies.

The program favors wealthy communities

Because the FSTC relies on individuals to make donations and claim federal tax credits, the wealthiest counties could generate three times as much FSTC funding per student as the poorest counties, while rural counties would also receive less given the limited focus of SGOs on their communities and local donors. The program could also take funding away from public schools when students use the vouchers to transfer to private schools.

Allowing some public schools to earn pennies from a program designed to benefit private schools does not make the FSTC a reasonable program for states to enroll in to meaningfully support public schools.

ICYMI: Neera Tanden’s conversation with New Mexico Gov. Michelle Lujan Grisham

Last week, Gov. Lujan Grisham (D-NM) joined CAP’s Neera Tanden for an important discussion on how she invested in New Mexico families by enshrining universal child care in the state.

New Mexico’s embrace of universal child care stands in stark contrast to the Trump administration’s policies to make child care less affordable and accessible for working families. The Trump administration has frozen funds for child care assistance; launched targeted attacks against the Head Start program; repealed Biden-era rules to cap family costs and support the workforce; and carried out mass layoffs of support staff, thereby reducing financial and administrative guidance for local providers.

Hear Gov. Lujan Grisham’s opening remarks: