I’ve been doing this long enough that hearing a steady drumbeat of triumphal PR blasts and exuberant op-eds makes me nervous. Look, I get the dynamic at work. Enthusiasm is contagious; hand-wringing about potential headaches is demoralizing. Boarding the bandwagon means you’re part of a team; persnickety questions mean you “don’t get it.”
When a new thing is taking off, school reformers have a history of treating inconvenient questions as a distraction. Only later, after committing enough avoidable missteps and unforced errors, is there room for reflection. By then, of course, the damage is done. This was the story of No Child Left Behind, Reading First, teacher evaluation, Common Core, SEL, and much else.
So, I don’t necessarily expect anyone to appreciate me raising a couple of thorny challenges on the eve of one of the most exciting developments in the history of school choice. But such is life. Now, there are important questions about how a president AOC might leverage the FTSC to lean on private schools, or whether the credit will mostly serve as a slush fund for public school systems. Today, though, I want to dig into two manageable FSTC challenges that just aren’t getting the elbow grease they deserve—in the hope of sparking more concerted efforts to get out in front of them.
Sure, scholarship contributions are free. But will taxpayers actually contribute? The $1,700 contribution really is costless to taxpayers, in the sense that they owe those dollars to Uncle Sam if they don’t take the scholarship tax credit. Anyone who owes $1,700 or more in federal taxes can contribute $1,700 to a scholarship fund and subtract that right off their tax obligation. Pretty easy, right? And since something like 80 or 100 million Americans owe at least $1,700 a year in federal taxes, that’s a lot of potential contributors.
The problem is that small impediments routinely stop us from doing “easy” things that reduce our take-home pay. Only about half of workers contribute to their 401(k) plans, and getting the figure that high has required decades of constant cajoling and fiddling with auto-enrollment. In other words, millions of people are passing up free employer matches this year (for reasons ranging from confusion to cash-flow issues to not trusting their employers). Even the prospect of pocketing free money isn’t enough to get these millions to contribute to their 401(k)s.
In the 1970s, following Watergate, Congress adopted a provision that allowed taxpayers to direct $1 of their taxes to publicly fund presidential elections. Intended to combat the influence of big donors, this was a 100 percent tax credit; like the FSTC, it added nothing to the taxpayer’s obligation. The IRS stuck it right at the top of the 1040 tax form. Yet in 1977, just 29 percent of taxpayers checked the box. That was down to 19 percent by 1992 and 4 percent in 2020. Why the low take-up? Mostly, confusion about the program, skepticism about its purpose, and uncertainty about what a tax credit means.
Advocates correctly note that FSTC contributions are “free money” for taxpayers, since that money is going to the federal Treasury if they don’t participate. But that doesn’t mean people believe they’ll actually receive the credit, figure out how to make a donation, be willing to deal with the requisite record-keeping, or have the cash flow to float $1,700 until they file their returns.
There are some promising proposals to address these challenges. If employers were to fold the tax credit into their benefits packages (so it’s just a check-off, like health insurance), it could be a huge boost to take-up. The impact could be supersized if employers adjusted withholding to reflect an employee’s FSTC contribution, so that take-home would be unaffected. If platforms for managing contributions and record-keeping were incredibly user-friendly, that could help, too. The folks at the American Federation for Children are among those wrestling with that challenge. Trust matters, so getting local schools or churches involved could be another big catalyst for giving.
I’d love to see these efforts closer to the center of the conversation rather than consigned to the wonkish edges and overshadowed by the rank punditry about which blue states might opt in next. Remember that people frequently don’t fund tax-advantaged accounts that benefit themselves, largely due to the hassle factor (as in they don’t like to be). I don’t put a lot of stock in the casual assurance that taxpayers will jump through hoops to give money away simply because, as one very prominent champion explained to me, “It’s a good thing to do.” And if the early returns wind up being disappointing, the program risks taking a reputational hit.
Will a few bad SGOs poison the brand? Part of the beauty of the FSTC is its decentralized, voluntary nature. The credit will likely permit taxpayers to give to a vast array of Scholarship Granting Organizations (SGOs), many with very specific community ties. This is part of the appeal; the FSTC promises to enable a variety of school-provided opportunities in manifold settings. To prevent politicians from stifling this pluralistic and dynamic system, the FSTC legislation restricted the ability of states to limit providers.
This flexibility has a lot of practical and political appeal—but also some big vulnerabilities. I’m reminded of the early years of charter schooling, when a loose approach to authorization led to lousy schools and scandalous hijinks in states like Texas and Ohio. Indeed, it took charter schoolers many years—and a lot of assiduous scrubbing—to overcome the enormous reputational damage.
