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Education Groups Strongly Oppose Senate Tax-Reform Proposal

By J. R. Sirkin — July 12, 2019 4 min read


Precollegiate-education groups have begun mobilizing opposition to a draft U.S. Senate tax-reform plan that they say jeopardizes state and local support for public schools.

“It’s completely unacceptable,” Gregory A. Humphrey, the chief lobbyist for the American Federation of Teachers, said of the plan, which would curtail deductions that many taxpayers now itemize on their federal tax returns.

“We’re totally opposed,” added Michael A. Resnick, the associate executive director of the National School Boards Association.

In several respects, the tax-reform I plan drafted by Senator Bob Packwood of Oregon, the Republican chairman of the Senate Finance Committee, treats public schools, higher-education institutions, and private schools more favorably than a tax bill already approved by the Democratic-controlled House.

But unlike the House bill, the Senate plan would limit deductions of state and local taxes on federal income-tax returns. Educators claim the loss of such deductions would undermine the public’s willingness to tax itself to support schools, because state and local governments raise more than 90 percent of all public-school revenues.

Specifically, the Senate plan would disallow deductions of state and local taxes on sales and personal property, and it would limit deductions of state and local income taxes by wealthy individuals.

The changes would save the federal treasury some $26 billion over five years, helping the finance panel lower the top tax bracket for individuals to 35 percent while retaining a “revenue neutral” tax bill.

The House-passed bill set the top tax rate at 38 percent.

The so-called “Packwood plan,” as it has come to be known by its opponents, is supposed to serve as a starting point for the mark-up of a tax bill in the Senate. However, Senator Packwood secured broad support for the plan, including that of Senator Russell B. Long of Louisiana, the committee’s ranking Democrat, prior to unveiling it last month.

“There’s no sign of compromise,” said Bruce Hunter, director of federal-state relations for the Council of Chief State School Officers. He predicted that the finance panel will vote “up or down on the Packwood proposal.”

“Right now it’s too close to call,” he added.

The committee began writing its bill March 19 and is expected to continue through the end of April. Mr. Packwood has said the full Senate will vote on the bill in June, and he hopes to have a House-Senate conference version ready for the President’s signature by mid-August.

When he announced the plan, Senator Packwood said it would safeguard funding for public schools because it permits the deduction of real property taxes, which provide the bulk of locally generated revenues for schools.

But Robert Chlopak, executive director of the Coalition Against Double Taxation, said Mr. Packwood’s statement was “totally fallacious,” because states provide more than 50 percent of all funds for public schools and many local governments also rely on sales and income taxes.

“People are used to being able to deduct these taxes,” Mr. Humphrey said. “If they can’t, in whole or in part, their resistance to taxes will increase. That’s what we know.”

Opponents also say the Packwood plan would have an uneven impact on states, because some rely more heavily than others on sales and income taxes for their revenues. The Packwood proposal, if approved, would simply encourage states to change their tax patterns, perhaps by raising property taxes, opponents say.

Some Benefits

Other provisions of the draft plan would benefit public schools and their employees by easing some House-approved restrictions on pensions and the issuance of tax-exempt bonds.

For example, unlike the House-passed bill, the Senate plan would not count an employee’s contributions to an Individual Retirement Account against the $7,000 annual limit on annuity investments. But the plan would essentially leave intact House-approved limits on the tax holiday enjoyed by school pensioners.

Unlike the House bill, the Senate draft would also make charitable contributions fully deductible, which would benefit private schools, colleges, and universities. The House-passed bill would disallow deductions for contributions of $100 or less by individuals who do not itemize their tax returns.

Private schools and higher-education institutions would also benefit more under the Senate plan than the House-passed bill because the Senate plan would:

  • Retain the tax-exempt status of the Teachers’ Insurance and Annuity Association and the College Retirement Equities Fund, which provide pension benefits for most of the nation’s higher-education community and many private schools.
  • Exempt higher-education institutions from so-called “nondiscrimination rules,” which would require them to offer similar benefits to all employees.
  • Exclude gifts of appreciated property from the alternative minimum tax, which is applied to wealthy individuals who otherwise escape taxation. Colleges and universities had argued that donors might hold back gifts of items that appreciate in value, such as land or works of art, if they could not deduct their full appreciated value.
  • Exclude from statewide volume caps the bonds used by private colleges and universities and some private schools.

A version of this article appeared in the April 02, 1986 edition of Education Week


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