Superintendents attack scholarship tax credits as ‘profitable’ for rich

Tax credit defenders say the financial gains are minimal

Rich donors can make money by funding scholarships for Georgia’s private schools, says a national group of public school leaders in a new analysis of scholarship and voucher programs.

The national School Superintendents Association, which opposes the tax-based tuition subsidies because they leave less money on the table for public schools, published the report Public Loss, Private Gain, with the Institute on Taxation and Economic Policy. It describes the “double-dipping” tax benefits gained by those who donate to such programs in Georgia and eight other states.

“The potential for wealthy individuals to turn a profit by claiming these credits is accelerating the diversion of critical resources away from public schools,” it says, labeling the programs “get rich schemes for shrewd taxpayers.”

Proponents of the tax credits say this is an exaggeration since in many cases the benefit amounts to a few hundred dollars off one’s federal tax payment, though the benefit could climb into the thousands. It also applies only to weathier donors, typically those who make more than $200,000, because of arcane tax laws.

The credit works like this: a Georgia taxpayer donates money to a private school through a nonprofit Student Scholarship Organization. The organization passes it to the school as a tuition subsidy. The donor then gets 100 percent of the money back as a state income tax credit.

If the donor also claims the contribution as a deduction on their federal income taxes, they can recoup nearly 30 percent return on what is — because they get 100 percent back from the state — basically a temporary contribution.

Some private schools have touted the money-making opportunity on their websites. While supporters do not deny it’s possible, they dismiss the idea that a bunch of elites are using this to make money.

“This program stands to benefit the students who participate by going to the best school that they can, and I think that is why the overwhelming majority of donors participate,” said Michael O’Sullivan, executive director of Georgia CAN, a non-profit that advocates for school choice.

Many states have attempted to expand school choice by instituting tuition subsidy programs, either as scholarship tax credits, as Georgia has done, or as tuition vouchers paid directly by the state.

The Georgia program allows contributions up to $1,000 for individuals, $2,500 for couples filing jointly and $10,000 for business owners.

The money paid for, or helped pay for, more than 13,000 students to attend Georgia’s private schools in 2015. The scholarships are often positioned as helping poor families send children to better schools, but there is no clear evidence that low-income families benefit more than middle or upper class students. Georgia divides recipients into four income groups, from high to low, and reports on the flow of scholarships. About a fifth of the recipient families were in the bottom quarter and half were in the bottom half.

Rep. John Carson, R-Marietta, a scholarship supporter, agreed with the report’s conclusion that Georgia taxpayers could recoup more money than they gave. But he said it’s a nominal amount, up to a few hundred dollars per $1,000 contributed.

“The program’s contributors probably have better uses for their hard-earned money,” said Carson, a certified public accountant. “To call it a shelter is just absolutely irresponsible.”

The tax credit program is capped at $58 million annually. Carson tried and failed to get it increased during the 2017 legislative session.

Even if wealthy participants could make money on this, he said, he’s sure they are a minority of participants. Most of the letters and phone calls he’s gotten from people who gave money were teachers and other workers who likely earn too little to qualify for the break. he said. “Georgians, by and large, are not prepaying their taxes to game the system. They’re doing this to change kids’ lives.”

Yet scholarship organizations and schools that get money from the the tax credit have described it on their websites as a profit opportunity.

As of Thursday afternoon, Georgia GOAL, the scholarship organization that receives the most donations, was saying on its website that qualifying taxpayers would be “double dipping” if they got both the 100 percent state credit and a state deduction for a charitable contribution on their state taxes.

“However, when taxpayers are subject to Alternative Minimum Tax (AMT), the result is an ‘economic benefit!’” that could result in up to $2,900 for taxpayers.

The Alternative Minimum Tax is a way of calculating taxes for high earners.

Whitefield Academy, which promotes itself as “a Christ-centered preparatory school” in Mableton, said on its website Wednesday morning, that those who file with the Alternative Minimum Tax “actually stand to make money on this program.”

The superintendents report, released Wednesday, notes this, and by Wednesday afternoon Whitfield had scrubbed that quote from the website.

The Wood Acres School in Marietta said on its website Thursday, “…you can ‘profit’ up to 29 percent on the amount donated.” It calculates a $290 return on a $1,000 contribution and a $725 return on a $2,500 contribution.

And the website of Pay it Forward Scholarships read Thursday, “You will end with more money than when you started, and you will be helping students receive a good education.”

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