Federal Tax Credit Program Aims to Boost School Choice in Michigan

LANSING — As Michigan continues to grapple with its reading scores crisis, U.S. Education Secretary Linda McMahon is pressing the state to opt into a new federal tax credit program that could expand school choice options for Michigan families.

The program, known as the Education Freedom Tax Credit, was approved by Congress last year and allows taxpayers to claim federal tax credits of up to $1,700 for donations made to approved scholarship-granting organizations. The donated funds are then used to provide scholarships to K-12 students for tuition, tutoring, and other educational expenses.

Michigan's Reading Score Challenge

Michigan's performance in fourth-grade reading has been a consistent concern for state education officials. According to recent data, Michigan ranks 44th in the nation for fourth-grade reading scores, with only six states performing worse. In 2022, the average score of fourth-grade students in Michigan was 212, which was lower than the national average of 216.

"The average score for students in Michigan was five points below the national average," education officials noted in recent reports. The gap between Michigan's scores and those of neighboring states has raised questions about the state's educational effectiveness and the need for bold solutions.

Federal Program Promoted by National and State Leaders

On Friday, March 27, a press conference was held in Hamtramck to promote the Education Freedom Tax Credit program. U.S. Education Secretary Linda McMahon appeared alongside U.S. Representative Tim Walberg, chair of the House Committee on Education and Workforce, Republican Conference Chairwoman Lisa McClain, U.S. Representative John James, and Michigan House Speaker Matt Hall.

McMahon visited Hamtramck Academy, a charter school that enrolls about 550 students, where she urged Michigan to "unleash educational excellence for every child" by participating in the new federal program.

"The Education Freedom Tax Credit isn't some distant idea, it's a homegrown solution that puts Michigan families in charge," McMahon said at the event.

How the Program Would Work

Under the program, which is expected to be available for donations beginning in 2027, people can donate to scholarship-granting organizations and receive up to $1,700 in tax credits. There's no cap on how much scholarship money a student can receive, according to a fact sheet from the federal Treasury and Education departments.

The scholarship organization determines the amount "based on the mission" of the organization, the fact sheet states. The tax credit is available starting in 2027.

The program relies on a multi-step process:

  1. States must first choose to participate
  2. Participating states approve eligible scholarship organizations
  3. Taxpayers donate to those organizations
  4. Donors then claim a federal tax credit of up to $1,700 when filing taxes

The nonprofit groups — referred to as Scholarship Granting Organizations — would use the funds to provide scholarships to students for education-related expenses, including private school tuition, academic tutoring, services for students with disabilities, and other approved K-12 costs.

Eligibility Requirements

Eligibility is based on income and school enrollment criteria. The Education Department says students must be eligible to attend a K-12 public school and come from households earning no more than 300% of the local median income.

Potential Impact

Federal officials say the program could significantly expand access to education options. A report cited in the Education Department's fact sheet estimates the tax credit could generate up to $24 billion annually in scholarship funding, depending on participation levels.

Supporters argue that could give more families the ability to choose schools or services that better fit their children's needs.

Michigan's Response

Michigan House Speaker Matt Hall, a Republican from Richland Township, said he is working with Governor Gretchen Whitmer on efforts to improve literacy, and the federal program is another way to improve student achievement.

"If they're in a failing school, this could be the lifeline for their family with these scholarships to go into another school that will help unlock their potential," Hall said. "So this is another tool that Michigan needs, and I'm very hopeful that Gov. Whitmer will see that, to see what other governors have seen and opt us in."

Republican state Representatives Matt Maddock, Alicia St. Germaine, Joseph Pavlov, and Mike Harris also attended McMahon's event.

However, Whitmer has previously said the program is a "high-level talking point" and that she needs more information before making a decision. A Whitmer spokesperson said Friday she had nothing to add from Whitmer's previous comments about the program.

Education Officials' Concerns

State Superintendent Glenn Maleyko did not directly answer whether he wants the state to opt in. "My priority is adequate and equitable funding for public schools in Michigan," Maleyko said in a statement to Bridge Michigan Friday. "I believe federal resources should be devoted to those priorities."

School choice advocates have raised concerns about the program's impact on public education. Katherine Nitz, media relations coordinator for the Michigan Education Justice Coalition, told Bridge Michigan the program would "weaken public schools" and "sets the stage for privatization."

"This would wind up gutting public school funding, which is already tenuous in Michigan," Nitz said.

The Michigan Constitution prohibits using public funds for private school attendance. So far, 27 states have opted into the program, according to McMahon. Only two Democratic governors — in Colorado and North Carolina — have said their states will likely join.

State-School Choice Context

While Michigan does not have a state private school choice program, roughly 1 in 4 Michigan public K-12 students attend a charter school or use the state's choice program to attend a school outside their local district, according to a previous Bridge Michigan analysis.

Michigan families are also allowed to home-school their children and do not have to notify the local district or state about this choice.

What Comes Next

The U.S. Treasury Department and IRS are expected to finalize implementation details in the coming months. The tax credit would apply to contributions made beginning January 1, 2027.

The program is optional for states, meaning Michigan would need to opt in for residents to participate. That decision could ultimately determine whether families in Metro Detroit and across the state are able to access scholarships funded through the tax credit.

Local 4 is working to get a response from state officials and educators about the program as it continues to develop.

Previous Legislative Efforts

Previously, Whitmer has vetoed similar state efforts to pass a tax-credit scholarship program. Critics of the program say the only reason to not opt into the federal program would be "spite," according to state Representative Tim Kelly, a Republican from Saginaw.

The federal program faces questions about how it would function in practice. Because the credit reduces federal tax revenue, some analysts and critics have expressed concern about potential long-term impacts on public education funding.

Others point to challenges around access, noting that families must navigate nonprofit systems to receive scholarships, which may not be equally accessible to all. The program also places responsibility for awarding scholarships on nonprofit organizations rather than government agencies, raising questions about oversight and distribution.

Broader Context

The push for the Education Freedom Tax Credit comes amid broader debates about school choice and educational funding in Michigan. The state's reading score challenges have been a consistent focus for education officials, with various proposals aimed at improving literacy rates and student outcomes.

As the program develops, Michigan families and education stakeholders will be watching to see how the state responds to federal pressure and whether the program will ultimately benefit Michigan students or create new challenges for public education.

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