Federal School Choice Agenda: Luke Messer, Peter Murphy

Original AEI Article Link

A major legal victory in the US Supreme Court and a string of significant legislative victories in statehouses across the nation made 2022 a landmark year for school choice. Still, the reality in America today is that education freedom remains elusive for tens of millions of K–12 students and their families. After over a quarter century of state-based advocacy campaigns, 65 programs in 31 states have been established, serving more than 600,000 students. Yet this represents only 14 percent of total private school enrollment and less than 1.2 percent of total K–12 enrollment.

The sad truth is that education freedom continues to be a reality primarily for upper-income families. While some new choice programs, such as Arizona’s Empowerment Scholarship Accounts, provide substantial financial resources, too many of the programs established to date do not provide sufficient capital to unlock the potential that so many early school choice proponents saw for the movement.

Although school choice proponents tend to be skeptics of federal involvement, we believe that bringing federal financial resources to bear could be the game changer that the school choice movement has been waiting for—and that it can be done effectively and responsibly.

An excellent effort toward this end is the Educational Choice for Children Act (ECCA), which was introduced in summer 2022 in Congress and which House Republicans named as a top priority in their education agenda in 2023.1 The ECCA would provide vast additional financial resources without usurping the proper state and local government roles for education governance and policymaking. And there is every expectation it will soon be reintroduced in the next session of the new Congress, which convenes in January.

Here’s how it would work. The ECCA would amend the Internal Revenue Code to provide up to $10 billion in tax credits annually against federal individual income and corporate tax liability for making charitable donations to not-for-profit scholarship granting organizations (SGOs). SGOs would then fund scholarships for K–12 students to pay for tuition and other eligible education expenses.

Annual credits for individual donors would be limited to 10 percent of adjusted gross income or $2,000, whichever is higher. For business donors, the credit would be for up to 5 percent of taxable income. Student eligibility would be limited to 300 percent of the median income in each metropolitan and nonmetropolitan area as annually determined by the US Department of Housing and Urban Development. This measure benefits students from low-income to middle-class families and reflects the diverse costs of living across the country. The ECCA could benefit more than two million students, assuming an average scholarship of nearly $5,000. This would constitute a more than threefold increase in the number of students able to choose a private school through existing state incentives.

The ECCA maintains federalism and avoids a prescriptive, bureaucratic approach to education. It would not expand the federal government’s size or power nor impose mandates on states and localities. It would not touch the federal Elementary and Secondary Education Act. It would not spend public taxpayer money, which is subject to annual debates over budget appropriations. The ECCA provides no role whatsoever for the US Department of Education. Rather, the Treasury Department would simply make the annual tax credits available to individual and corporate donors through a web-based portal.

Using the tax code to drive private investment has been a staple of conservative federal policymaking for more than four decades, dating at least to the 1978 Steiger Amendment, which lowered the federal tax on capital gains income. Although conservatives generally favor tax simplification, many still favor tax incentives such as child tax credits, universal savings accounts, retirement savings accounts, and middle-class mortgage interest deductions, which expand freedom and empower middle- and lower-income families.

That said, we expect some conservatives may raise substantial objections to the ECCA. Some might note that the federal government has no constitutional role in education and should therefore not play any more significant role. Others could raise concerns that federal legislation could engender federal encroachment on religious freedom and private SGO and school autonomy. Fiscal hawks might complain that this would increase the budget deficit. And school choice wonks might note that SGOs operating under state school choice laws will face greater complexity and administrative challenges interacting with a federal initiative. Each concern is reasonable, but each can be answered effectively.

First, the ECCA does not actually expand the federal government’s role in education. In fact, the legislation does not mention the US Department of Education. Rather, the ECCA uses the tax code to encourage the private sector—individuals and businesses—to invest in better schooling options for America’s children. It contains no new spending or mandates on states or local education agencies. This contrasts with the mandate-filled policies under previous Republican and Democratic administrations, including the No Child Left Behind Act and the Race to the Top program. Although it is a federal initiative, the ECCA actually diminishes the federal government’s power by empowering more parents to direct their children’s education outside the district public system. This in turn reduces government influence, particularly that of the federal Department of Education.

Second, the ECCA protects the independence and religious liberty of participating SGOs and private schools with express language prohibiting any government encroachment, regulatory or otherwise, on faith-based entities. Furthermore, Supreme Court case law has established the constitutionality of school choice and holds that tax credits do not involve public or taxpayer money.2 Instead, they are legally considered private money funding private activities. This important distinction further insulates participating organizations against government interference.

In addition, the ECCA contains no mandates beyond basic ministerial requirements for SGOs and places no federal requirements such as standardized testing or reporting on schools as a condition for scholarship recipients. Those polices will be left to the appropriate state and local governing authorities.

Third, while the ECCA will reduce tax revenue to the federal Treasury, it could easily be more than offset by ending the $24 billion annual cost of the Biden administration’s unilateral student loan giveaway to gainfully employed, college-educated adults. Budgetary offsets at the Department of Education should also be easy to find. Finally, the potential life-changing impact for millions of middle- and lower-income families offers a highly leveraged investment opportunity for our nation.

Fourth, while federal tax incentives would add additional administrative responsibility to SGOs in states that already offer a state tax credit scholarship program, the SGOs could use up to 10 percent of donations for administration. This should be sufficient to offset that burden.

For too many families, top-down government control over education has resulted in deteriorating academics, waning accountability, ideological capture, and eroding parental rights. Meanwhile, school choice continues to be a reality almost exclusively for the rich and middle class.

Congress can and should play a significant role in expanding educational freedom for school-age children. And it can do so without a top-down blizzard of annual spending and mandates on states and school districts. It can do so in a limited-government way that incentivizes the private sector to empower millions of parents with the freedom to choose the best education available for their children. Finally, it can do so in a way that respects the constitutionally established federal system whereby education management and policy properly remain state and local responsibilities.

With failed pandemic policies and woke cultural debates affecting schools across the country, parents need educational alternatives for their children right now. The ECCA would give millions of children the educational freedom to prepare for a productive and prosperous adulthood. For lawmakers, policymakers, and activists who champion education freedom, it is time to raise this issue to a new level to help millions of children across every state reap the benefits of school choice and prepare a better future for America.

Read the full report.