Fiscal Policy

Governor Pritzker to Low-Income Students and Families: Loopholes for Me, but Not for Thee

Illinois Governor Jay Robert Pritzker speaks at the University of Chicago in Chicago, Ill., July 23, 2020. REUTERS/ (Kamil Krzaczynski/Reuters)
Reducing scholarships for disadvantaged students is wrong — especially from a governor pushing a loophole that would line his own pockets.

Illinois’s J.B. Pritzker is the richest governor in the country. In less than a full term, Pritzker has been at the center of multiple tax-avoidance scandals, including trimming his income taxes through offshore accounts and ripping toilets out of one of his mansions to lower his property taxes in what a local inspector general called “a scheme to defraud” taxpayers.

So, when the governor’s recently proposed budget included $932 million in new revenue from what he branded “closing corporate tax loopholes,” it raised some eyebrows. In tax policy, one person’s “loophole” is often another’s “valuable economic incentive.” But Pritzker may be particularly lacking in credibility to tell us which is which.

One of the supposed “loopholes” that the governor wants to close is actually a tax-credit scholarship program known as “Invest in Kids” that helps low-income kids attend a private school that meets their educational needs. At the same time, Pritzker is asking President Biden to undo the cap placed on state and local tax (SALT) deductions, a move that would save him $2.5 million annually. It’d help out a lot of other wealthy folks, too.

Merriam-Webster defines a loophole as “a means of escape; especially: an ambiguity or omission in the text through which the intent of a statute, contract, or obligation may be evaded.” When applied to debates about taxation, the term tends to be intermingled with ideological preconceptions. Still, a close look at the facts about SALT deductions on the one hand, and Invest in Kids scholarships on the other, makes clear which of the two can more appropriately be called a “loophole.” Spoiler: It isn’t the one that encourages philanthropy and helps disadvantaged students maximize their potential.

The scholarship program Pritzker wants to gut helps families within 300 percent of the federal poverty line attend a private school of their choice, prioritizing the neediest students first. Forty-nine percent of kids who participate in the Invest in Kids program are black or Hispanic, and the average annual household income of participants is $38,000. For many recipients, it represents an otherwise unattainable opportunity to improve their education. Donors to the program receive a credit against state taxes worth 75 percent of their donation, up to a maximum of $1 million.

Pritzker says he can raise $14 million by reducing it to 40 percent, which would inevitably shrink the funds available to low-income kids and parents.

On the other hand, SALT is a tax credit that has historically benefited the very wealthy in high-tax states, such as Illinois, by reducing federal taxes owed by the same amount of state taxes paid. The $10,000 SALT limit was imposed in 2017 to help offset the revenue loss caused by tax-relief provisions in the Tax Cuts and Jobs Act. Repealing the cap would cost the federal government $130 billion. The benefits would flow to the wealthiest Americans, with 62 percent going to the top 1 percent of income earners and 86 percent to the top 5 percent, according to the Institute for Taxation and Economic Policy. The bottom 60 percent of earners would see no benefit.

Illinois was one of 19 states in which the average SALT deduction exceeded $10,000 prior to 2017. Pritzker, therefore, is in the right place — as well as the right income bracket — to reap the rewards of his advocacy of an unlimited loophole to avoid state taxes.

Unlimited SALT deductions never made sense to begin with, as they effectively subsidized high-tax states by making the federal government bear the economic cost of state tax policy. Even the New York Times editorial board, which had always supported an uncapped SALT in the past, recently switched its position, writing, “Instead of eliminating the SALT Deduction cap, Congress should eliminate the deduction.”

Eliminating SALT entirely makes sense if paired with other changes to avoid raising anyone’s taxes. SALT is effectively both a loophole and a subsidy that encourages higher taxes and benefits the wealthy while doing nothing good for society overall.

Credits that fund Illinois’s Invest in Kids scholarships, on the other hand, are exactly the kind of tax policy that benefits everyone. Empower Illinois, a nonprofit that helps match students with scholarships, reports that the program has raised $167 million and served more than 22,000 students since launching in 2018. Only 17 percent of applicants receive a scholarship, and 32,000 kids are waiting in line. It would require $205 million more to fully meet demand, suggesting the program should be expanded rather than scaled back.

Stories from beneficiaries of the program, such as Nicole Sniff and her son Drake, show why lawmakers must fight Pritzker’s plan to limit the program further. Nicole says the tax-credit scholarship program made it possible for Drake to excel in school despite his learning disabilities.

This is not the first time that Invest in Kids scholarships have been in Pritzker’s crosshairs. His 2019 budget proposed phasing out the program over three years, ending it earlier than the 2024 sunset in current law. That was not entirely surprising, considering that the state’s overbearing teachers’ unions loathe any semblance of giving choice to parents and kids when it comes to schools — and the governor tends to support anything the unions want.

Thankfully, lawmakers have so far succeeded in beating back Pritzker’s assault on the scholarship program. His 2019 phase-out plan never passed. In fact, on May 6, a bipartisan group of 46 state representatives introduced a bill to make the program permanent.

There may always be disagreement about which credits and deductions are worth preserving and which are “loopholes” deserving elimination. But reasonable people can agree in the abstract that a good tax credit or deduction is one that benefits the whole community. A bad one rewards the powerful and well-connected at the expense of other taxpayers.

The bipartisan defense of Invest in Kids scholarships shows that, sometimes, tax policy really can be a simple matter of right and wrong. Reducing scholarships available to help disadvantaged students is wrong — and doubly so coming from a governor who is simultaneously pushing a special tax loophole that would line his own pockets.

Tax-credit scholarships are one of the few things the state gets right when it comes to tax policy. Illinois spent wisely when it decided to Invest in Kids.

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