Why Education Savings Accounts Are the Right Path to School Choice

In addition to being at the forefront of a national movement to drive down, flatten, and even phase out state income taxes, South Carolina is also a national leader in what has been dubbed the “golden age of school choice.” In 2023, two years after beginning to cut the state income tax, South Carolina lawmakers enacted the South Carolina Education Scholarship Trust Fund (ESTF) Program, which is now providing thousands of children across the Palmetto State with resources to attend the school of their choice. South Carolina’s ESTF program is providing eligible children with annual education savings accounts (ESA) now valued at over $7,600, which is indexed to grow with inflation and can be used to pay for tuition, school supplies, testing fees, transportation, and other education-related expenses.

In response to a legal challenge brought by the NEA-affiliated South Carolina Education Association and others, and to ensure the law passes constitutional muster, South Carolina lawmakers enacted a revamped version of the ESA bill in May of last year. The new law provided 10,000 scholarships for the 2025–2026 school year, 15,000 scholarships for subsequent years, and flexibility for the legislature to further expand the program.

However, as the debate over school choice was playing out in the South Carolina statehouse, an amendment was offered that proposed the enactment of a new $2,000 universal refundable tax credit scholarship program instead of the ESA program that was ultimately approved. These types of scholarships provide a tax credit against a person’s income tax liability. Lawmakers ultimately rejected that idea, a decision that was both wise and nationally instructive for a host of reasons.

Critics of that proposed $2,000 universal refundable tax credit scholarship pointed out that it would be much less helpful to families than ESAs. In fact, while the proposed tax credit scholarship would’ve provided families with up to $2,000 to be used for tuition and other education-related expenses, South Carolina’s ESA program is now providing families $7,634 to put toward the cost of tuition for the coming school year.

Not only does South Carolina’s ESA program provide more support to families than the proposed tax credit program, but the ESA funding is also more readily available. The proposed education tax credit was refundable but would require that families bear tuition costs up front and then wait until they filed their taxes the following year to recoup some of that expense. Critics of the proposed tax credit point out that the low-income households most in need of school choice are least able to pay such costs on the front end. They’re also least likely to file taxes.

Unlike the ESA program that was enacted, a tax credit scholarship program would have conflicted with South Carolina lawmakers’ goal of gradual income-tax elimination. Had South Carolina legislators opted to create a tax credit scholarship program instead of providing ESAs, the resources available to children and the benefits to taxpayers would diminish as the state income tax disappeared.

By winding down the income tax, lawmakers would cut off the lifeblood of the proposed $2,000 universal refundable tax credit scholarship program, as well as the two existing tax-based scholarships for students with special needs — one being a proper tax-credit scholarship, and the other a refundable tax credit for parents to help offset the cost of private school tuition. With nearly a dozen states around the country considering income tax drawdowns, South Carolina’s experience and the problem that state lawmakers there avoided is instructive for legislators who wish to expand school choice and also do away with their state income tax. Increasing school choice and phasing out income taxes are conservative policy goals that should not be in conflict, nor do they need to be.

“As income taxes are phased out, the underbrush of constituencies invested in tax deductions and credits becomes less and less rewarded by the tax benefits,” Ryan Ellis, president of the Center for a Free Economy and an IRS-enrolled agent who runs a tax preparation firm, told National Review. “This creates a conflict of interest where there should be an alignment of taxpayer interests.”

For the same reasons why South Carolina lawmakers were wise to enact an ESA program to provide school choice to South Carolina families, lawmakers in Columbia might want to consider transitioning the state’s existing tax-credit scholarship program for special-needs children to a model that gives tax credits to businesses against the state corporate income tax and the state capital stock tax. That’s because South Carolina will likely still have those taxes on the books even after the personal income tax is fully eliminated.

As their counterparts in North Carolina and Tennessee have done, South Carolina lawmakers expanded access to the state’s ESA program this year by increasing funding, expanding eligibility, and lifting enrollment caps. After making eligibility for North Carolina’s ESA program universal in 2023, the North Carolina legislature went back and increased funding to ensure that no families would be stuck on a waiting list. Likewise, after making all children in Tennessee eligible for the Volunteer State’s ESA program last year, Governor Bill Lee (R., Tenn.) and legislative leaders in Nashville passed a bill this year to increase funding for their ESA program so that more families can utilize it.

South Carolina is now poised to catch up to, and perhaps even surpass, North Carolina, Georgia, Arizona, and other states in the coming years when it comes to school choice and income-tax relief. South Carolina has long been a deep-red state that consistently elects Republicans to federal and statewide office. However, under the leadership of Governor Henry McMaster, Speaker Murrell Smith, Senate Leader Shane Massey, and their colleagues, South Carolina is at last being governed like a red state, one offering lessons from which others can learn.