The Virginia Senate voted down a bill this week which would have provided tax credits to corporations that give scholarships to low-income children in order to attend private schools.  The proposal was backed by Governor McDonnell as part of his “Opportunity to Learn” initiative and passed the House of Delegates on February 8.

Critics of the bill argued that the tax credit would divert the state’s general fund dollars away from the public school system towards private schools.  Proponents, including the Governor, claimed it would afford low-income students educational opportunities they would otherwise not be able to access.

The debate over the education tax credit bill contrasts vividly with Virginia’s reduction in Earned Income Tax Credit (EITC) benefits last year.  Virtually every state with an EITC ties its benefits to the federal program.  However, when President Obama expanded the federal EITC, Virginia was one of two states that decided to “decouple” its EITC from the federal changes.  Obama's EITC expansion increased benefits for families with three or more children and reduced the marriage penalty.  This would have made a minimal impact on the cost of Virginia’s EITC, which is set at 20 percent of the federal level, yet would have provided greater benefits to low-income families.

Of course, decoupling creates administrative difficulties, because it's far easier to calculate a state EITC that is simply a percentage of the federal one.

Soon, Virginia will again be faced with this decoupling issue.  The federal tax compromise enacted in December of 2010 extended the Obama EITC expansion through 2012.  When the issue arises again, lawmakers and citizens should grapple with why Virginia’s governor and House members seem willing to provide a tax credit to corporations for removing low-income children from public schools, but not a credit that goes directly into the hands of hard-working Americans.

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