They say don’t bury the lede, so here goes: The Education Freedom Tax Credit (EFTC) could be an utter disaster.
The EFTC is a new federal program that passed through the reconciliation bill last year. It allows donors to provide a $1,700 donation to a scholarship-granting organization (SGO) and receive that money back through a tax credit. Those SGOs can then provide scholarships to students to pay for various educational goods and services: after-school tutoring, tuition at private schools, curricular materials, education therapies for students with disabilities, and other such expenses.
More simply, you can give $1,700 to an SGO and receive that money back (in the form of an income-tax credit), while the SGO gives out scholarships for various educational purposes.
Ideally, this program will create a funding stream to allow struggling Catholic and Lutheran schools to prosper, homeschools and microschools to flourish, and public schools to offer a litany of new, supplemental services.
How could it go wrong? Let me count the ways.
Most likely, this program becomes a glorified slush fund for public schools. They have the infrastructure to make it work: marketing teams, pre-built contact lists, and a bureaucracy. A public school district can mass email every single family and run campaigns to encourage donations to their preferred SGO. Homeschooling co-ops? Not so much.
A few public-school superintendents that I’ve spoken to have gotten wise to this reality. Writing about a promotional event at the Treasury Department last week, the New York Times framed the program as functionally equivalent to vouchers for public schools. And along with this likelihood is simple waste: spending a bunch of money and thereby contributing to our national debt, without getting anything in return by way of student learning or academic outcomes. We’ll see new bureaucrats, new programs, and the same mediocre outcomes.
Another risk, which Deputy Assistant Secretary for Tax Policy Kevin Salinger acknowledged in his remarks at Treasury, is fraud and abuse. The possibilities are endless: family members hired as “consultants,” huckster educational services, “education purchases” that are personal goods, the list goes on.
Of all the ways this could go wrong, fraud and abuse ranks low for me. Other school choice policies rein in such misconduct. For example, Jason Bedrick never tires of pointing out that Arizona’s ESA program has fraud, yes, as any system will, but the extent of it is functionally a rounding error. Moreover, Salinger’s remarks imply that Treasury is taking seriously the risk of such malfeasance. That being said, conservatives need to be ready to have the next “Quality Learing Center” debacle land in their laps.
The greatest risk in my mind is that in time this program will become a stick that the federal government can wield to thwack private schools into submission. Were private schools to adjust their budgets or expand such that they come to depend on funds through this program, it then becomes a point of leverage for antagonistic administrations.
It wouldn’t be the first time. At the level of higher education, administrations have leveraged grants and Title IV funds to force universities into compliance—from eradicating DEI to Title IX compliance. The same could happen here. Any time an institution accepts public monies, it invites regulation. As others have said, “he who pays the Piper calls the tune.” At the state level, there have already been initiatives to place regulations on private schools that accept public funds. Exploiting this program for regulatory control is most certainly on the minds of at least some Democrats and perhaps also some Republicans.
As it’s currently written, the federal law regulating the EFTC has only a few requirements for participating SGOs: They must devote 90 percent of their income to scholarships, serve more than 10 students who do not all attend the same school, and provide moneys only to students from households earning less than 300 percent of the area’s median income. Furthermore, the guidance that Slinger presaged seems to indicate that states will not be allowed to place further requirements on SGOs.
That said, were a President Alexandria Ocasio-Cortez to come into office, there’s little to prevent her from politicizing standards of compliance or approval for SGOs: for example, excluding SGOs that fund religious schools that deny trans students an ability to use the bathroom of their choice. Such a change would mostly certainly trigger a court case on First Amendment grounds. While that litigation winds through the courts, a Catholic school has a difficult choice to make if 20 percent of its budget is tied up in EFTC.
As a final risk, might I simply point to the graveyard of failed federal education policies? Reading First, School Improvement Grants, Race to the Top—if past is prologue, this EFTC could prove to be just another failure. There are surely countless other ways that this program could falter beyond the concrete possibilities above.
I want this program to succeed. I want struggling private schools to find a lifeline that allows them to compete with the free alternative of public education. I want students in failing schools to have the resources necessary to escape and secure a quality education. I want new educational models—co-ops, microschools, part-time homeschools, unique charter and private schools—all to flourish. I want blue states to have the benefits of a school choice policy. Were I advising a governor, I’d still recommend they join the program regardless of my reservations.
But if conservatives aren’t careful, in 20 years, the EFTC could be just another chapter in a book penned by some policy wonk warning of failed federal school reforms.
