There's plenty of debate about whether a South Carolina tax credit that funnels public dollars to private schools is good education policy, or good fiscal policy, but there's no question it's one way some people can save money.

I'm not talking about the people who can get private school scholarships for their exceptional-needs children, but rather, the taxpayers who can get up to $1.42 in tax savings for every dollar they donate through the scholarship program.

It's a rare thing to profit financially by making a charitable contribution, but that's how it works in this instance, for people with South Carolina income tax liability who also itemize deductions on their federal return.

It works that way because a donation to a qualifying scholarship funding organization is matched by a dollar-for-dollar South Carolina tax credit, but that donation is also a federally tax-deductible charitable contribution (even though you get all of the money back, as a state tax credit). Then, the federal tax deduction reduces your income that's subject to South Carolina income tax, because the state's income tax is based upon your federal tax return.

So, every dollar donated reduces the donor's South Carolina income tax bill by $1.07, assuming they are taxed at the state's top rate. And donations can be made with stocks, which also can help some donors avoid federal capital gains tax.

"Yes, it sounds unbelievable, but it is the law," said Palmetto Kids First, a scholarship funding organization based in Mount Pleasant, in an information sheet prepared for potential donors.

"Most of our donors actually profit," the organization exclaimed.

But wait, there's more.

This tax credit arrangement particularly benefits high-wealth taxpayers who are subject to the federal Alternative Minimum Tax. Someone subjected to the AMT would save another 28 cents for every dollar donated, because the donation reduces the income to which the AMT would apply. And if that person is in what's know as the AMT exemption phaseout, then the savings climb by another 7 cents on the dollar.

So, now you have a situation where some taxpayers save $1.42 for every dollar they donate.

The donated money goes to the nonprofit scholarship funding organizations, which are required by state law to distribute at least 95 percent of the money to fund scholarships for exceptional-needs students at private schools. So, every 95 cents in scholarships can cost the state and federal treasuries up to $1.42, under this arrangement.

South Carolina capped the amount of tax credits at $8 million yearly, limiting the size of the program and the amount of credits available. Credits are awarded on a first-come, first-served basis.

If you think the policy sounds a bit complicated, and fiscally inefficient, you'd be correct. But we taxpayers don't make the rules; we just need to know what the tax rules are so we can make informed financial decisions.

The word is clearly just starting to get out about this, because the first-year round of tax credits was not all claimed by the June 30 deadline, when the state's fiscal year ended. One donor who clearly understood the details donated $1.52 million, accounting for a large portion of the $5.4 million in tax credits claimed as of the last week in June.

By my math, that single donor will gain between $100,000 and $638,000 on the arrangement, depending upon the donor's federal tax rate.

The other beneficiaries of the program are, of course, the parents of exceptional-needs students who can be awarded scholarships of up to $10,000. Donors cannot specify who gets a scholarship, or which school, so donors can't dictate where their money goes.

Those who plan to donate to one of the scholarship funding organizations can find more information on the website of S.C. Education Oversight Committee, at eoc.sc.gov. Key points to keep in mind are; there's a limited amount of tax credits to be claimed, and tax credits can't exceed 60 percent of a donor's South Carolina income tax liability for the coming year.

Reach David Slade at 937-5552