Under scholarship tax credit programs such as the one created by LB 364, the state would forgo a large and growing amount of revenue to provide a dollar-for-dollar tax credit to those who make donations to private school scholarship-granting organizations (SGOs), which in turn, provide scholarships to students in private K-12 schools. LB 364 — which will be the focus of a Thursday afternoon Revenue Committee hearing — would be one of the most generous programs in the nation and it would create much greater tax benefits for donations to SGOs, as compared to all other nonprofits.

Under the tax credits proposed in LB 364 — which could end up costing the state more than $90 million annually by 2032 — an individual, couple, or business can receive a credit equal to 100 percent of their total contributions or 50 percent of their income tax liability, whichever amount is smaller.

There are, however, no limits on donation amounts. This means that as long as there are enough credits available, a corporation with an income tax liability of $1 million could donate to a private scholarship granting organization of $500,000 and receive a $500,000 tax credit. Or, if a couple has income tax liability of at least $20,000, and they donate to a private scholarship granting organization of $10,000, they 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 will be the amount of their donation multiplied by their 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 percent, the tax savings would be $684. This couple’s tax benefit for donating to an SGO would be 14.5 times greater than it would be for donating to the private or public-school foundation.

While 18 states currently have scholarship tax credit programs, only 11 of them offer credits to individual taxpayers, in the manner that LB 364 does. Ten of these states either offer credits at a lower percent of the contribution or have a stricter limitation on the maximum credit that a taxpayer can receive in any given year. Only in one other state – Louisiana – could the couple in the previous example receive a $10,000 tax benefit for their $10,000 donation.

OpenSky has several other concerns regarding LB 364, which we discuss in this policy brief. The hearing on LB 364 starts at 1:30 p.m. on Thursday and will be streamed live by NET Nebraska.