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May 6, 2025
Education Access & Equity Education Policy K-12 Education
Children & Families Demographics & Population
Federal Fiscal & Tax Policy
Congress
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Brown Center on Education Policy
Private school choice programs have garnered plenty of attention lately. Most of the policy action has been at the state level, where about a dozen Republican-led states have built education savings account programs (ESAs) that offer public funds to nearly all families to pay for their children’s private schooling. Critics have raised an assortment of concerns, including that these programs disproportionately benefit the wealthy, prompt private schools to raise their tuition rates, violate longstanding norms for U.S. schools, and aren’t well supported by research evidence.
The opposition hasn’t just come from Democrats. In state after state, Republican legislators from rural areas have pushed back, alleging that their constituents have little to gain and plenty to lose from these programs. They have emphasized that public schools are a lifeblood of rural communities, where private schools can be hard to find.
In the months ahead, the debates over private school choice will likely move to the federal level. That’s because Congress is poised to consider a major, federal tax-credit scholarship program that advocates say will be included in the upcoming budget reconciliation process. That means that Republicans in Washington could create a large, nationwide private school choice program—on their own—without having to worry about a Senate filibuster.
Still, we should expect plenty of debate. Some critiques will echo those from the ESA debates, including whether this would disproportionately benefit the wealthy. Others will be new, including how an administration that espouses local control could support a major federal program like this. Rural Republicans could play a pivotal role in these debates, too, given the GOP’s slim majority in the U.S. House.
In this piece, we dig into the proposed federal tax-credit scholarship program. We explain how this type of program could work, and we explore some of its implications, especially for rural communities. In doing so, we focus our analysis on the bill currently before Congress: the Educational Choice for Children Act (ECCA) of 2025.
Tax-credit scholarship programs, like ESA programs, are variants of school voucher plans that were designed to skirt the legal and political obstacles facing vouchers. The defining feature of tax-credit scholarship programs is that they draw their funding from individual or corporate “donations” that generate tax credits for the donor. Basically, donors give money to a scholarship granting organization (SGO), which is a largely unregulated 501(c)(3) that exists to hand out vouchers (“scholarships”). These SGOs take the funds they receive in donations and distribute them to families to cover tuition or other approved expenses. Unlike ESA programs, which families use to fund their own children’s education, tax-credit scholarship donors are giving to an organization that distributes funds to other families. Critically, however, these donors get tax credits for their trouble.
This means that tax-credit scholarship programs are both education policy and tax policy, and they need to be analyzed as such. ECCA would authorize $10 billion in federal tax credits in 2026, with provisions for annual 5% increases. That’s approaching the federal spending levels for Title I ($18.4 billion in FY 2024) and the Individuals with Disabilities Act ($15.5 billion)—the two largest federal fundings streams in K-12 education. These funds would be available to nearly all students across the country, since ECCA would facilitate contributions to SGOs that aren’t run or authorized by state governments. That is, these voucher funds would reach the deepest blue and deepest red areas alike. The main exclusion, as written into the bill, is that households earning more than 300% of their area’s median gross income aren’t eligible to receive voucher funds. More on that in a moment.
In other words, as education policy, this would amount to a massive federal program that would, in effect, impose a private school voucher program on all 50 states (and Washington, D.C.). The $10 billion cap, at least in the short term, would limit the number of recipients or size of their vouchers. Still, this would be unprecedented as federal education policy.
As tax policy, it’s perhaps even more striking. The bill promises a full 1:1 credit to donors such that they receive a tax credit equal to their contribution. Note that this is tax credit, not just a deduction, so it really does offset the “donation.” Laura Meckler of the Washington Post cites tax experts who say that this, with its 1:1 match, would be the most generous tax credit that the federal government offers for a charitable donation. There is no other federal tax credit like it.
Meckler goes on to explain how ECCA would, in fact, be more generous than a 1:1 credit. That’s because taxpayers could donate stock to SGOs and receive a credit for its full value without ever paying capital gains tax on the earnings. For example, if someone buys $5,000 in stock and it doubles in value, they can donate the shares valued at $10,000 to an SGO, receive a $10,000 tax credit from the federal government, and avoid paying taxes on their $5,000 in earnings. Carl Davis of the Institute on Taxation and Economic Policy told Meckler, “That is the quintessential definition of a tax shelter.”
These issues led us to wonder who would really benefit from a federal tax-credit scholarship program like ECCA.
Rural legislators’ opposition to state ESA programs has focused on the relative lack of private schools in rural areas and the damage that might come from corresponding disinvestment in rural public schools. Sen. Lisa Murkowski (R-Alaska) emphasized these points during Linda McMahon’s Senate confirmation hearing, where Murkowski argued for “public funds for public schools.”
Let’s start here as we consider who would benefit from a tax-credit scholarship program. How accessible are private schools to families in different types of locales?
We wanted to see how far public school students would have to travel to get to the nearest private school. Of course, we don’t have the home addresses of America’s public school students. We do know something about school addresses, though.
We took private schools’ location from the 2021-22 Private School Universe Survey, which contains the latitude and longitude coordinates for 22,345 of the country’s (roughly 30,000) private schools. We calculated distance “as the crow flies” from 9th graders’ public schools (as a proxy for where they live) to the nearest private school that offers 9th grade.
As you might expect, rural students must travel much farther than urban and suburban students to reach the nearest private school. For example, as shown in Figure 1, we estimate that about 92% of urban and 80% of suburban public school students have a private school within five miles of their public school. The same is true for only 28% of rural students.
This relative lack of nearby private schools is a straightforward way that a tax-credit scholarship program would underserve rural communities. There’s also a subtler way related to which families are eligible to obtain a scholarship in the first place.
Recall that ECCA’s key eligibility criterion is that children must come from a household with income “not greater than 300% of the area median gross income.” On the surface, that might sound like a reasonable way to exclude wealthy families or account for cost-of-living differences. In practice, it’s not that simple. It means that the “wealthiest” families in the poorest parts of the country are ineligible, while the almost-wealthiest families in the wealthiest parts of the country are eligible.
Consider an example. If your local area has a median income of $45,000 and your family earns $150,000, you earn too much money to be eligible for a voucher. However, if your local area has a median income of $175,000 and your family earns $500,000, you’re eligible. These examples come from the real world. If we’re correctly interpreting which data the bill would use to determine eligibility, then some families that earn $590,000 per year would be eligible to receive a voucher.[1] To say the wealthy are excluded would be a stretch.
That’s not just a cost-of-living adjustment, and it has a rural/urban dimension. Rural families tend to live in lower-income areas than urban families. This means that a rural family is much less likely to qualify for an ECCA voucher even if it has the same income as an urban family.
Figure 2 depicts this issue using the U.S. Census Bureau’s rural/urban classifications (which differ from the U.S. Department of Education’s city/suburb/town/rural classifications in Figure 1). We estimate that 92% of urban households that earn $250,000 would be eligible for a voucher, while only 65% of rural households that earn $250,000 would be eligible. These households earn the same amount of money. They just face different eligibility thresholds because rural families live in lower-income areas.
If we combine the takeaways from Figure 1 and Figure 2, we see two ways that rural families would be underserved by ECCA. As described above, though, a tax-credit scholarship program isn’t only education policy; it’s also tax policy. Next, we look at the rural-urban differences through the lens of who is likely to benefit from ECCA’s tax shelter.
ECCA’s tax incentives offer the greatest benefits for high earners with substantial stock market investments. For example, ECCA limits an individual’s tax credit to 10% of their adjusted gross income (or $5,000—whichever is higher). The more you make, the larger your potential tax credit. Meanwhile, those with substantial stock market holdings are the likeliest to benefit from dodging capital gains taxes.
Relative to urban households, rural households are less likely to have high incomes. Figure 3 shows our estimates of income distributions for rural and urban households, based on tract-level data from the U.S. Census Bureau. While 13.4% of urban households earn $200,000 or more per year (the highest income category reported), the same is true of only 7.8% of rural households.
It’s a similar story with wealth. The Employee Benefit Research Institute (EBRI) compared the wealth and assets of rural and urban individuals. They found that 18.7% of urban individuals report assets of $500,000 or more, while only 11.7% of rural individuals report the same. When EBRI compared which assets these groups hold, they found that rural individuals are much less likely to hold their assets in stocks, mutual funds, and retirement accounts.
Any conclusions about which households—rural or urban—are more likely to benefit from ECCA’s tax shelters are speculative. However, urban families are better positioned for financial benefit.
This piece looks at only a few of the many questions that we should be asking about tax-credit scholarship programs. For example, how would we pay for this, and what offsetting cuts might we expect in federal education funding? Where are the quality control and accountability measures? And are we comfortable with largely unregulated SGOs having major influence in our education systems?
ECCA could become a hot topic of conversation as more Americans learn that the federal government may, in effect, impose a voucher program on them—with a funding model built on tax incentives that are ripe for exploitation. Rural communities, in particular, might wonder who, exactly, would benefit from this program.
[1] H.R. 833 (the House bill that would establish ECCA) identifies this eligibility criterion as “a member of a household with an income which is not greater than 300 percent of the area median gross income (as such term is used in section 42).” Section 42 says that area median gross income (AMGI) is calculated as described in Section 8 of the United States Housing Act of 1937. We used what we believe to be the relevant Section 8 data from this page on the Department of Housing and Urban Development website.
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