Education Secretary Betsy DeVos is riding to the rescue of a private-school tax break that was ensnared in a bitter fight between the Treasury Department and Democratic states that sought to circumvent caps on state and local deductions under the Trump tax overhaul.
DeVos and two Republican lawmakers are pushing a plan to pump $10 billion in federal tax credits into private school scholarship funds -- a longstanding GOP priority. These programs that were accidentally hit as Treasury proposed to block Democratic states from creating their own charitable funds to circumvent a cap on tax breaks for state and local tax deductions, known as SALT.
President Donald Trump’s tax law limited SALT deductions at $10,000, a pittance for New York, New Jersey and California, high-tax states that also happen to be Democratic bastions. These states quickly established funds for charitable purposes and passed laws to create tax credits for donations to those funds, which mimicked ones used for years in red states as a way to raise money for private schools.
Several high-tax states created programs that would allow their residents to circumvent the deduction cap by creating charitable funds for a variety of programs where donors can get a state tax credit in exchange, effectively removing the SALT limitation.
The Treasury Department issued new rules to block that workaround. Yet those broadly written rules also would severely restrict the tax benefits Republican states can give to donors of their private-school tuition scholarships funds.
Many of these programs allowed the donor to reap state and federal tax benefits that exceeded the amount of the original donation. And those funds encouraged families to enroll their children in private schools and embrace school choice.
DeVos, a longtime proponent of school choice, has a plan to mitigate some of the damage that fellow activists say would be done to education tax credit programs -- prevalent in GOP strongholds like Alabama, Georgia and Arizona -- by the Treasury action.
Her $10 billion program would allow private-school donors to recoup some of the federal tax benefits they would lose under the Treasury rules, expected to become final in the coming months. The federal tax breaks would add to the more than $1 billion in state tax credits already available from the 18 states that offer scholarship programs.
The DeVos plan “wouldn’t reverse the regulations, but at a time when the rules might dampen enthusiasm for donating, it would more than offset it in terms of the number of dollars donated,” said Carl Davis, research director at the left-leaning Institute of Taxation and Economic Policy.
It’s hard to quantify just how much the Treasury proposal would affect donations to plans that give tax credits for philanthropy. Robert Enlow, chief executive officer at EdChoice, a school choice advocacy group, said fewer donors are giving to state programs, though he acknowledged he doesn’t know if that’s tied to the Treasury proposal or other economic factors.