S-4297-119
Read twice and referred to the Committee on Finance.
Sponsored by Mark Kelly (D-AZ)
What it does
This bill would repeal two provisions added to the Internal Revenue Code: (1) Section 25F, a tax credit for individuals who donate to scholarship granting organizations (SGOs) that fund private school tuition, and (2) Section 139K, an income exclusion that allowed scholarship recipients to receive those funds tax-free. Both changes would take effect for tax years ending after December 31, 2026. The bill does not directly regulate private schools or state-level scholarship programs — it only removes the federal tax benefit for donors and recipients.
Who benefits
Public school districts and their students, who supporters argue would benefit from redirected federal tax revenue. Teachers' unions and public school advocacy organizations. Taxpayers who do not use private school scholarships and who may benefit if the eliminated tax expenditure reduces the federal deficit or is redirected. State governments that fund public education and may see reduced competition for enrollment-based funding.
Who is hurt
Low- and middle-income families who rely on SGO scholarships to afford private or religious school tuition — particularly those who cannot afford tuition without scholarship assistance. Scholarship granting organizations that depend on donor contributions incentivized by the tax credit. Private and religious schools, especially those serving lower-income communities, whose enrollment may decline if scholarship funding drops. Donors who currently claim the credit and would face a higher effective cost of charitable giving to SGOs. Students currently enrolled in private schools via SGO scholarships who may lose funding mid-education.
Supporters argue
Supporters argue that federal tax credits for SGO donations effectively divert public revenue to private and religious institutions, undermining the funding base of public schools that serve the vast majority of American students. They contend that the tax credit — like similar state-level programs — disproportionately benefits wealthier donors who can afford large charitable contributions and claim the credit, while public schools in low-income areas face chronic underfunding. Redirecting this tax expenditure, they argue, would restore fiscal equity to a system where 90% of K-12 students attend public schools.
Opponents argue
Opponents argue that SGO scholarship programs are one of the few mechanisms that give lower-income families access to school choice options otherwise available only to the wealthy, and that repealing the credit would eliminate scholarships for students who have no viable alternative. They contend that the tax credit does not "divert" public funds but rather reduces the tax liability of private donors making voluntary charitable contributions — a distinction upheld in analogous state-level litigation. Cutting the credit, they argue, would harm the most financially vulnerable scholarship recipients while leaving affluent private school families unaffected.
Constitutional context
The Origination Clause (Art. I, §7, cl. 1) requires revenue bills to originate in the House; this bill was introduced in the Senate, which could raise a procedural challenge if it advances. The Taxing and Spending Clause (Art. I, §8, cl. 1) gives Congress broad authority to modify tax credits. No active constitutional tension is implicated — repealing a tax credit is a straightforward exercise of congressional taxing power, and the bill does not compel any religious or private school action.
Checks and balances
Congress would reduce its own tax expenditure authority by eliminating the credit; the IRS would implement the repeal administratively, and affected donors or organizations could challenge the effective date under the Due Process Clause's retroactivity limits if the timeline is deemed insufficiently prospective.
Historical precedent
The federal SGO tax credit (IRC §25F) was created as part of recent federal school choice legislation; no prior federal repeal of a comparable K-12 scholarship tax credit exists, though numerous state-level SGO programs have faced legal challenges with mixed results.