The ‘Big, Beautiful’ Bill Creates a $5 Billion Tax Shelter for Private School Donors

This op-ed originally appeared in The Hill

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On May 22, Congress passed the House reconciliation bill or “One Big Beautiful Bill Act” by a one-vote margin. The bill’s dozens of destructive tax provisions would supercharge inequality and force devastating cuts to health and food aid that have been bedrocks of the American safety net since the 1960s.

What has gotten less attention is an extremely unconventional provision establishing an unprecedented tax shelter designed to shift resources from public schools to wealthy people and private schools. The provision allocates $5 billion a year in tax credits for donors to organizations that provide private and religious school vouchers. While the bill cuts benefits for other charitable donations, it triples the tax benefit for private school voucher donations.

This unique dollar-for-dollar rebate is something no other charity has ever gotten from the federal government. Other donors may be taken aback to learn that policymakers have singled out private schools for a reward three times larger than what can be received for gifts to pediatric cancer research, flood clean-up, or assisting veterans exposed to chemicals.

More alarming still, this provision creates a profitable tax shelter for wealthy people who agree to help funnel public funds into private schools. This is because donors will avoid the capital gains tax entirely if they make a gift of stock. Tax advisors will instruct stockholders to avoid selling and to instead donate those holdings, getting a one-for-one return from the federal government while avoiding thousands or millions of dollars in capital gains tax.

This is of course the quintessential definition of a tax shelter, encouraging affluent people with no interest in school vouchers to direct contributions this way, not out of conviction but because of the profits enabled. Usually when policymakers do this, it is an inadvertent by-product of hasty legislative decisions, not an intentional giveaway. This, too, is a norm being broken with this bill.

The provision expands vouchers in every state, even in places – Kentucky, Nebraska and Colorado – where voters recently explicitly rejected vouchers at the ballot box. Voters have actually said no to vouchers in every state where they’ve been put on the ballot, which may be why proponents are sneaking a big expansion into a must-pass federal bill.

Vouchers – in addition to being unpopular – are expensive. We estimate this provision alone would reduce federal tax revenue by $23.2 billion over the next 10 years as currently drafted, or by $67 billion if it is extended beyond its four-year expiration date as Republicans would likely attempt to do. Because state income taxes largely piggyback on federal law, this provision would reduce state revenue by between $459 million and $1.1 billion over the decade, depending on extension. Of the 10-year state and federal tax cuts from this provision, between $2.2 billion and $5.3 billion would be in the form of capital gains tax avoidance, depending on extension.

Had this provision been in effect in 2021, Elon Musk could have cut his capital gains tax bill by $690 million.

In all, while cutting tax benefits for charities across the board, the reconciliation bill creates an unprecedented giveaway that would enrich the wealthiest people, particularly those whose income comes from stock. It would weaken public budgets and public schools, siphoning money to private schools that are allowed to reject many students. Combined with other enormous cuts to public programs and tax cuts to the top, this is an untenable combination.

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