
Michigan Attorney General Dana Nessel recently wrote an op-ed for the Detroit Free Press, offering her thoughts on the Federal Education Freedom Tax Credit Program. Unfortunately, her op-ed misrepresents the legality of the tax credit program and provides false information about its funding.
The program, created in 2025, is straightforward enough.
Under the program, parents may apply to scholarship granting organizations, or SGOs, in their state, provided their family income is less than three times their area’s median income. There is no cap on how much funding a student may receive from an SGO, and parents may apply to as many scholarship organizations as they like. Scholarship funds, however, may cover only items for educational purposes, such as books, supplies, tutoring, and school-related transportation expenses.
Scholarship organizations get their funding from donations. When Americans file their federal taxes, they will have an option to claim a tax credit for up to $1,700 (or $3,400 for joint filers) if they donate to an SGO. The scholarship organization must spend at least 90% of its income on the scholarships, and it must be recognized by the states in which it operates.
Scholarship organizations may only participate in the program if they are located in states where the state government opts into the program. Each state must submit a list of its qualifying scholarship organizations to the IRS. Taxpayers can still contribute to an SGO and receive a tax credit even if their home state has not yet chosen to participate, simply by contributing to a qualifying organization in a state that has opted in.
A state that refuses to opt in will not be able to prevent its residents from contributing to an SGO or even from receiving the federal tax credit. It will only be able to prevent its parents and students from benefiting under the program. The donations will go to SGOs and students in other states—and they will be spent in other states as well. More than 30 states have opted into the program, including those with Democratic and Republican governors.
In her op-ed, Nessel writes that “the federal dollars used would be redirected from funds Congress has already appropriated to support our most economically challenged public schools.” That claim is false. The money given to the scholarship organizations comes directly from donors, not Congress. And the IRS tax credit donors receive is not set against any earmarked or apportioned funds.
States must maintain a list of scholarship granting organizations for the IRS. “Such efforts,” Nessel writes, “could involve substantial time and effort and, therefore, state money. If so, it may run afoul of our state constitution by using public resources to support attendance at private schools.” This interpretation of the law is almost certainly insupportable. Private schools must, under law, register with the state, which maintains a list of private schools and various details associated with them. Yet these activities, and the various expenses associated with them, do not “run afoul of our state constitution.” Clearly, neither would maintaining a list of scholarship granting organizations that serve all students.
States cannot add to the requirements that federal law applies to participating scholarship organizations. Nessel claims that this “limits the state’s ability to create guardrails or oversight over the scholarship organizations while placing the sole responsibility for policing the program upon the state’s shoulders.” Given that this program is a federal one, offset by federal tax credits, the state should not arrogate the ability to exert “oversight.” Nor should it imaginatively expand providing a list to the IRS into a mandate to “police” the program.
Nessel claims that the tax credit is “designed to favor multi-state educational organizations over local or state-based programs.” This is a true statement in a tautological sense, but it is mostly meaningless. The program is federal, so it is multi-state by nature, as all federal programs are. An objection along those lines would also apply to federal benefits like Social Security, Medicare, and Supplemental Security Income, to say nothing of programs like SNAP, where the administrative cost is partially covered by the state.
“By keeping public funds dedicated to public schools,” Nessel writes near the end of her op-ed, we ensure that quality education remains a universal birthright in our state.” But the funds private donors give to scholarship organizations are not “public funds.” Scholarships granted by nonprofit organizations, likewise, are not “public funds.”
If Michigan opts out of the Federal Education Freedom Tax Credit Program, nothing will change for donors who are keen to gain a $1,700/$3,400 federal tax credit; they will simply donate to scholarship organizations in other states. But the vast majority of Michigan families — at public schools, charter schools, private schools, and home schools — will lose out on the ability to access the scholarships funded by their own neighbors. With Michigan schools falling further behind in educational performance every year, and with Michigan families struggling to meet educational expenses, refusing to opt in to the federal tax credit program is something that Michigan just can’t afford.
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.
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