Good morning, I am Allen Fagin, executive vice president of the Union of Orthodox Jewish Congregations of America, which I will refer to as the Orthodox Union throughout my testimony. I am grateful for the opportunity to appear before you to discuss our concerns regarding the impact of the proposed regulations on vital state education tax credit programs. I also want to thank IRS chief counsel staff for making my presence here possible in light of other scheduling conflicts necessitated by the recent tragedy impacting the Jewish community.
The Orthodox Union is the nation’s largest Orthodox Jewish umbrella organization. The Orthodox Union represents nearly 1,000 synagogues across the country as well as hundreds of non-public K-12 Jewish “day schools” and yeshivot, and the many thousands of families who choose to have their children educated in those schools. These schools provide our community’s children with a dual curriculum comprised of two essential elements:
First, the in-depth study of the Torah, Talmud, Jewish philosophy and other studies essential for rearing our children to be committed and practicing Jews; and
Second, education in math, English, history, civics and other studies essential for rearing our children to be productive and engaged members of American society.
There are more than 860 Jewish day schools across the United States educating more than 300,000 children in grades K-12.
The financial cost of operating a dual curriculum school is significant. Indeed, the cost is daunting to our families and the cost of this education is the American Jewish community’s greatest challenge. The Orthodox Union has worked for decades on an array of legislative and policy “school choice” initiatives with state governments to enable parents to be able to afford to make the educational and faith based choice to send their children to such schools.
Among the most important initiatives are state tax credit programs now adopted in more than 15 states that provide various kinds and levels of tax credits for contributions to education scholarship funds via entities called Scholarship Granting Organizations. Such programs support thousands of students annually in the Jewish community.
Let me provide you just two examples of such state based programs.
In Pennsylvania, over 40% of Jewish day school students are eligible for and receive scholarships from funds raised under Pennsylvania’s tax credit programs. More than 1300 students receive scholarships worth more than 13 million dollars.
In Florida, 25% of Jewish day school students across the State receive tax credit scholarships. There are more than 2600 students receiving scholarships worth more than 18 million dollars.
We have significant concerns regarding the continued viability of these state education tax credit programs as a result of the position taken in the proposed regulation that the amount of the charitable contribution deduction must be reduced by the amount of any state or local tax credit the donor receives. The adverse impact of the proposed regulations on these programs will harm thousands of students that depend upon these scholarships and their families. The adverse impact is unnecessary and unwarranted. These charitable contributions to state education tax credit programs are not being used to circumvent the $10,000 SALT tax deduction limit.
The proposed regulations even impact charitable contributions by donors who are below the SALT deduction cap of $10,000. Estimates from six state education tax credit programs show that more than 60 percent of their donors are below the SALT deduction cap. Thus, even in these cases where the granting of the credits does not allow taxpayers greater itemized deductions that they would otherwise be entitled, the proposed rule would eliminate their charitable deduction.
I would like to propose two ideas to address the concerns of the Orthodox Union and avoid harming thousands of low-income children by denying them scholarships to attend a school of their choice.
First, I would like to propose that the regulations solely apply to contributions made to a state under section 170(c)(1) “for public purposes.” Thus, the new regulations would not apply to contributions made to other charities, including Scholarship Granting Organizations. Such a proposal would be consistent with the goals the Treasury Department was seeking to achieve but also still be consistent with the prior tax policy that permitted these education tax credit programs to benefit thousands of students each year.
Alternatively, if the first solution is not adopted, at the very least the current tax treatment of state tax credit programs in existence prior to tax reform being enacted should be maintained. These pre-existing state tax credit programs (whether to support school choice, environmental conservation or other purposes) were clearly not adopted for the purpose of evading the SALT limitation imposed by tax reform.
Either approach we have suggested would be consistent with the clear intent of Congress in tax reform to advance school choice programs through several other sections of the Tax Code.
Thank you for the opportunity to address you today and I am available to assist Treasury and the Internal Revenue Service in crafting rules to continue to permit school choice programs to be affordable for most parents. I would be happy to answer any questions you might have.