By Matt Barnum

School-choice advocates won a major victory with President Trump's tax megabill -- but it comes with a catch.

The federal government will now subsidize private-school tuition, via unusually generous tax credits for donations to nonprofits. However, governors must opt into the program. Democratic-led states may reject it, derailing school-choice advocates' goal for a nationwide effort.

Now comes a protracted debate at the state level. Progressives and public-school groups object to funding private schools and say the new program will hurt public education. Supporters say the money will give families options outside of their neighborhood school.

"There will be a lot of pressure in blue states not to opt in," said John Schilling, an adviser to the American Federation for Children, a leading champion of the legislation.

Vladimir Kogan, a political-science professor at Ohio State University, said the situation now is analogous to Obamacare's expansion of Medicaid, which some Republican-led states rejected. "This is going to be the blue-state equivalent," he said.

For decades, conservatives tried and failed to get Washington to provide financial backing to private schools. Richard Nixon and Ronald Reagan advocated for tax credits, while George W. Bush wanted vouchers for low-income children. The recent megabill offered a chance to fold school choice into a broader package.

The law, enacted earlier this month, will soon allow taxpayers to redirect a portion of their tax bill to nonprofit scholarship-granting organizations or SGOs. The taxpayer could write a check of up to $1,700 to an SGO but get that full amount back via a reduction of the same amount in their income taxes, instead of a regular tax deduction for the donation. It is a donation that doesn't ultimately cost the donor anything.

The SGO would then issue stipends to families for private-school tuition, among other permitted educational expenses. Families are eligible to receive scholarships if their income is up to three times the median in the area.

It isn't clear how much the program will end up costing or how many scholarships it will fund. That will depend on how many taxpayers channel their tax dollars to SGOs and how many states participate. Congress's Joint Committee on Taxation estimates the provision will cost $25.9 billion through 2034. Advocates say a huge marketing campaign will be necessary to inform taxpayers of this option.

The measure will go into effect in 2027, with no expiration date.

"We know it's going to allow us to raise more money," said Norton Rainey, the chief executive officer of ACE Scholarships, which helps low- and middle-income families afford private school. He hopes to expand scholarships to more children in more states.

The legislation says that generally governors will decide whether SGOs in their state are eligible to receive federally subsidized donations. This will be an easy call for most Republican governors, many of whom have backed private-school vouchers in their own states.

For Democratic governors, the calculation will likely be more complicated. They will face pressure from school associations, including teachers unions, to opt out of the new federal tax credit.

"It's a distraction from what really needs to happen," said David Goldberg, president of the California Teachers Association. "They use it to cloak their vicious, savage cuts to public education." He added that voters recently rejected school-choice measures in three states.

On the other hand, states are usually reluctant to turn down federal money, and ultimately about 40 states, including a number of red ones, have expanded Medicaid.

Democrats for Education Reform, an organization that backs school vouchers for low-income students, plans to circulate a memo making the case that blue states should participate in the program. "We believe that choice is the future and it's really important for Democrats to get on board," said the group's CEO Jorge Elorza.

Spokespeople for a handful of Democratic governors said they were reviewing the provision. Others didn't respond to requests for comment.

Although the law has been pushed by private-school advocates, it also allows SGOs to issue stipends for costs related to public schooling. Public schools don't typically charge tuition, but they sometimes charge for extras such as field trips, band uniforms, AP exams and after-school programs.

Jon Valant, education director at the Brookings Institution, a center-left think tank, has criticized the federal legislation but says that Democratic governors should look at whether they can mold the tax credit to support public education and lower-income students.

"Before we just say no to this, is there a way for us to turn this into a program that we want in our states?" he said.

Write to Matt Barnum at matt.barnum@wsj.com

(END) Dow Jones Newswires

July 21, 2025 05:30 ET (09:30 GMT)

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