Indiana’s Tax-Credit Scholarship: An Example to Follow

Indiana is a national leader in school choice. The Hoosier state has two sizable and rapidly growing school choice programs that help families enroll their children in the schools that work best for them. During the 2013-14 school year, more than 11,000 students received tax-credit scholarships to attend the school of their family’s choice, and nearly 30,000 students received school vouchers — up from fewer than 3,000 scholarships and 4,000 vouchers two years earlier.

A new Friedman Foundation report examines the fiscal and social impact of Indiana’s School Scholarship Tax Credit, offers suggestions for how it might be improved, and raises the bar for current and future tax-credit scholarship laws across the country.

Here is a look at Indiana’s tax-credit scholarship:

– Tax-credit scholarship laws, the frameworks in which nonprofit scholarship-granting organizations operate, vary in terms of student eligibility, the structure of the tax credit and administrative regulations. Indiana’s law avoids unnecessary regulations, but it also has the lowest credit value among all the TCS laws in the United States (50 percent of each contribution, compared to 100 percent in six states) and a relatively low total tax credit cap.
– Indiana’s school funding formula is based primarily on enrollment, so the state saves money for each student who leaves her assigned district school. Even after accounting for the students who likely would have attended a private school without a scholarship, during the 2014-15 school year, the School Scholarship Tax Credit program saved the state of Indiana an estimated $23.2 million.
– Expanding uses of tax-credit scholarship funds to include tutoring, textbooks, online classes, homeschool curricula, standardized tests, educational therapy, etc. Increasing the total amount of tax credits available from $7.5 million to $15 million in 2015-16. Raising the credit value from 50 percent of contributions to 75 percent in order to incentivize corporate and individual citizens to contribute more to scholarship-granting organizations.

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