State Senator Urges Treasury to Support Credit for Contributions Aiding K-12 Scholarships

In response, Mark A. Weinberger, assistant Treasury secretary (tax policy), has explained that the administration is studying Sen. Kyl's proposal and will consider potential issues raised by giving taxpayers a tax credit instead of a deduction and by limiting the class of eligible charities to school tuition organizations. The administration, Weinberger says, also will consider whether all of the requirements that normally apply for purposes of the charitable contribution deduction will be met.

[1] As Chairman of the AZ House of Representatives Education Committee, I am writing to you in support of legislation sponsored by Senator Jon Kyl regarding tuition tax credits. Arizona passed ground breaking legislation in 1997 allowing a $500 state personal income tax credit for donations to school tuition organizations that provide scholarships for children to attend a private school of their choice. In fact, in the November election, the people voted to continue support by increasing the tax credit per family to $625.

[2] Although the debate in 1997 was vigorous, the constitutionality of the Arizona tax credit was upheld by the Arizona Supreme Court in 1998 [Kotterman v. Killian, 972P.ZD 606 (Ariz. 1999)]. The tax credit survived claims under the federal Establishment Clause, the state's two religious clauses and the state's anti-gift clause. The basis for the 3-2 decision was that credits were not an appropriation or a collection of taxes, but a decision by the state government to not collect revenue on certain activities. Therefore, the court ruled that tax credits for private school expenses were not "public money". On October 5, 1999, the United State Supreme Court refused to hear the appeal.

[3] In the Arizona Supreme Court's decision, Chief Justice Zlaket wrote: "Until now, low-income parents may have been coerced into accepting public education... Arizona's tax credit achieves a higher degree of parity by making private schools more accessible and providing alternatives to public education." As you move forward with your education goals, I urge you to take a close look at Senator Kyl's legislation.

[4] If you have any further questions or concerns, please feel free to contact my office.

Respectfully submitted,

May 14, 2001

[5] Thank you for your letter to President Bush regarding Senator Kyl's legislation, S. 462, The Leave No Child Behind Tax Credit Act of 2001. To ensure that your correspondence was properly considered, the White House referred it to the Department of the Treasury.

[6] The Administration supports efforts to encourage philanthropy and to improve educational opportunities for children. In addition to proposed tax incentives to strengthen and reform education, the Administration has proposed tax relief measures to allow non-itemizers to deduct their charitable contributions, to provide tax-free treatment of charitable contributions of IRA assets, and to raise the cap on corporate charitable contributions which are designed to provide an incentive for all individuals and corporations to increase their support for charitable organizations. I am enclosing our explanation of these proposals for your review.

[7] We are Studying Senator Kyl's proposal. Your comments will be helpful in our study. In our evaluation of S.462, we will consider potential issues raised by allowing taxpayers a tax credit in lieu of a deduction and by limiting the class of eligible charities to school tuition organizations. We also will consider whether all of the requirements that ordinarily apply for purposes of the charitable contribution deduction would be met. For example, no charitable contribution deduction is available for amounts paid to charity which the charity uses to provide a benefit to the donor, such as the payment of tuition on behalf of the donor's child.

[8] Thank you again for writing.

Sincerely,