March 24, 2026

The Economic Impact from Colorado’s Choice to Participate in the “Education Freedom Tax Credit” Provision in the One Big Beautiful Bill Act

Introduction

On July 4, 2025, through the One Big Beautiful Bill Act (OBBB), the federal government established a nationwide tax credit for contributions toward K-12 education. Under the program, formally known as the Education Freedom Tax Credit or Educational Choice for Children Act, taxpayers may receive a federal dollar-for-dollar tax credit of up to $1,700 each year for donations used to fund scholarship-granting organizations (SGOs) that support K‑12 students. These scholarships can support a range of educational expenses, including private school tuition, tutoring, transportation, instructional materials, and other costs associated with taking courses from both public and private schools, including dual enrollment classes, tutoring, and Advanced Placement (AP) classes.

Unlike traditional government appropriations, the program operates through the federal tax code, creating an incentive for taxpayers to voluntarily contribute to organizations that fund educational scholarships. In other words, the program functions as a tax expenditure that reduces federal tax liability while encouraging private investments in education. From a public finance perspective, this structure helps expand choice in education and shifts some of the decision‑making authority over funding from government institutions to individuals and nonprofit organizations.

One other important note: while this program has been characterized as a “private school scholarship program,” it is not that. As we will explain later in this report, SGOs can grant parents funding for a number of uses, including costs associated with traditional public schooling.

Colorado will opt into the program starting in 2027. The implications of this policy are potentially enormous for the state since in Colorado financial support for choice in education is not broadly available across the private school universe, at least when compared to states with education savings accounts (ESAs). As such, federal incentives that encourage private scholarship funding could expand school choice for families seeking better educational outcomes.

The potential boost in revenue to schools, both public and private, in the state could be significant. Because the program operates through voluntary taxpayer contributions rather than direct federal appropriations, the amount of scholarship funding generated will be determined by how many residents elect to invest in future generations’ education. If participation is wide, the economic impact could be substantial.

To model the potential funding flows to both public and private schools, CSI developed a matrix of scenarios comprising participation rates of 1%, 5%, 10%, 15%, and 20% of taxpayers’ contributions. Colorado has approximately three million individual income tax filers. Even modest participation rates could therefore produce significant scholarship funding for students across the state. This scholarship funding shows up as revenue to schools. If just 1% of the maximum potential contributions to the EFTC program were donated, the resulting scholarship pool could reach $33 million. At higher participation rates, such as 5% or 10%, the available scholarship funding expands to $164 million and $329 million, respectively, supporting thousands of students seeking education opportunities.

This study examines the potential fiscal implications of the federal school choice tax credit provision for the state of Colorado. By modeling the investment and participation amounts and rates, the study provides a framework for understanding how the federal education choice tax incentives could translate into wide-ranging impact across the state for years to come.

Key Findings

• As of writing, 27 states have opted into the “Educational Choice for Children” program. Among these is Colorado (January 29, 2026 announcement). Colorado’s program will begin in 2027.
•  By encouraging taxpayers to invest in choice in education, the Education Freedom Tax Credit will boost funds available for parents to choose the learning environment of their children. For the state of Colorado, the total amount of potential maximum contributions by Colorado taxpayers could be up to $3.3 billion in donations that reduce federal income tax. By way of comparison, the IRS reported total federal income tax liability from Colorado residents in 2022 of $45 billion.   
•  A 1% participation rate at the maximum amount would generate $33 million for K-12 schools in the first year (2027). A 20% participation rate would generate $657 million in a single year.
• Donations could enable up to 36,000 more students to be able to attend the school of their choice.
•  Using other states’ experience as a guide and the fact that federal tax liability is typically greater than state tax liability, it’s likely that the participation rate will be between 5% and 15%. A 5% participation rate at the maximum amount would generate $164 million for K-12 education in the first year (2027). A 15% participation rate would generate $493 million.
•  One important note: while this program has been characterized as a “private school scholarship program,” it is not that. As explained later in this report, SGOs can grant parents funding for a number of uses, including costs associated with traditional public schooling.
• We do not know how SGOs will allocate money between public and private schools. If one assumes an 80%/20% split between private/public at a 10% participation rate, this means public schools would see an additional boost in funding of about $66 million in the first year. By way of comparison, state funding to Westminster Public Schools was approximately $69 million in 2024.[i]
•  By keeping more money in Colorado as opposed to sending it to the IRS, Colorado’s economy benefits. Assuming new investments in K-12 education at an 80%/20% split between private and public education providers and a 10% participation rate ($329 million), over the five-year period from when the program starts (2027) through 2031, the economic impact includes:
  • A boost to jobs of, on average, approximately 8,000 annually.
  • Cumulative gain in GDP of almost $5.2 billion.
  • An increase in output, or business sales, of almost $8.3 billion.
  • A boost to personal income of over $3.7 billion. That equates to an additional $600 for each Coloradan.
•  Of the additional personal income, wages for teachers represent the largest component. By encouraging more public and private dollars to be put towards education as opposed to going to the IRS, teachers, teachers’ aides, and other direct providers of education services are expected to see additional total wages paid of over $1.1 billion (2027 to 2031).