No, Donors Aren’t “Profiting” from Tax-Credit Scholarship Programs

Special interest groups that profit off the status quo in education have repeatedly tried to smear Pennsylvania’s successful tax-credit scholarship programs as “tax shelters for the rich.”

Critics claim that donors and businesses can “profit” by donating to the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC) programs. Calling it “triple dipping,” opponents suggest that donors receive a three-layered benefit via their state tax credit and a charitable deduction of both their state and federal tax liability.

None of this is true.

Let’s start with basic math. When a business or individual donates to an approved scholarship organization, they can receive up to 90 cents of every dollar donated back—in a year or so, as part of their tax refund—in the form of a state tax credit.

The federal government does not allow Pennsylvanians to count the tax credit toward their tax liability. In fact, the IRS has strict rules against it.

At most, a donor can claim a charitable deduction for the donation not covered by the state tax credit.

For example, if a Pennsylvanian donated $1,000 to a scholarship organization, the federal government allows the donor to deduct the $100 not covered by the $900 state credit.

In other words, while the tax credit allows donors to give more than they otherwise could by reducing their tax burden, it still costs donors more to donate to scholarship organizations than to pay their taxes.

Indeed, scholarship organizations, such as Children’s Scholarship Fund Philadelphia (CSFP) and BLOCS, provide calculators to show donors the benefits of donating. But making a $3,000 donation results in an out-of-pocket cost of around $230, reducing the cost of donating. However, that’s $230 more than a donor would have paid in taxes alone.

 That’s not a windfall. And it’s ridiculous to suggest donors are giving away their money out of “greed.”

Now consider what actually happens to that money. For 25 years, CSFP, one of hundreds of Pennsylvania scholarship organizations, has awarded $163 million in scholarships to Philadelphia K–8 kids—all thanks to EITC and OSTC.

This isn’t profiteering; this is philanthropy, plain and simple. Moreover, this is private money that never touches public coffers, alleviating all concerns about “robbing” funds from public schools.

Truthfully, these programs save taxpayers money. EdChoice conducted a fiscal analysis of educational choice programs and found a cumulative savings of between $6 billion and $11.9 billion through 2022 from EITC and OSTC. That savings is due to the funding discrepancy. While Pennsylvania public schools spend more than $23,000 per student, the average tax credit scholarship is around $2,500.

More importantly, students benefit from these programs. Last year, Pennsylvania awarded more than 101,000 K–12 scholarships, helping kids from low- and middle-income families afford a better education.

The true story is this: EITC and OSTC channel charitable gifts toward scholarships for kids whose families couldn’t otherwise afford the schools best suited to them, while saving public coffers more than critics admit.

Donors aren’t profiting; they’re funding an opportunity for kids who have very little of it. And there is still opportunity for you to join their ranks this fiscal year and receive a tax credit by giving before June 30 and helping kids get a better educational opportunity.