LB 364, a bill on today’s Legislative agenda, could allow taxpayers to direct up to half their income tax dollars to private school scholarship funds.
The measure would allow taxpayers to deduct the full amount of their donations to these funds from their income taxes, so long as the donation doesn’t exceed 50% of their total income tax liability. That would result in a tax break 14.5 times bigger than taxpayers would get for donations to public school funds, churches or any other charitable organization.
There are no limits on donation amounts under LB 364. This means that if there are enough credits available, a corporation with an income tax liability of $1 million could donate $500,000 to a private scholarship granting organization and receive a $500,000 tax credit. Or, if a couple has income tax liability of at least $20,000 and they donate $10,000 to a private scholarship granting organization, they would receive a state tax benefit of $10,000.
On the other hand, if the same couple makes a $10,000 donation to a non-profit private or public school foundation, the potential value of their tax benefit would be the amount of their donation multiplied by the tax rate in the bracket in which that income would have fallen. If that income falls in the state’s top income tax bracket of 6.84%, the tax savings would be $684.
Under committee AM 762, the scholarship tax credit proposed in LB 364 would reduce state revenues by as much as $5 million annually. The amendment also would create a separate tax credit for contributions to qualified early childhood education or child care programs – a provision originally introduced in LB 531. The annual fiscal impact of this provision could be as much as $5 million as well.
LB 364 was debated last session but failed to advance past the first-round. It is back up for debate this week because it was reprioritized. Read more about our concerns about LB 364 in this policy brief.