With the collapse of the Republicans’ effort to repeal and replace the Affordable Care Act, the next big-ticket item on the GOP’s agenda is reforming the federal tax code. So how could tax reform impact educators?
Late last month, congressional and Trump administration Republicans released a general set of principles that are guiding the tax reform effort, including the push to ensure the plan reduces tax rates “as much as possible.” (Congress last passed comprehensive tax reform in 1986.) We highlighted five items of particular interest for those working in schools below.
1) The State and Local Taxes Deduction
Eliminating this deduction on federal taxes, which has the support of some conservatives, would be a big step for GOP lawmakers, and maybe one they will ultimately decide is too dramatic. But according to Jack Jennings, a long-time Democratic education staffer on Capitol Hill and the former head of the Center on Education Policy, “That by far is the biggest threat to funding for education.”
Why? Getting rid of the deduction would put very significant pressure on state and local governments to reduce the tax burden they place on individuals. That, in turn, would likely cut down on tax revenue available to public schools. That’s particularly true in many states in the northeast where per-pupil expenditures from state and local sources are relatively high, Jennings noted—and those states, he added, did not vote for President Donald Trump in 2016.
We looked up studies on how much this might impact education spending, and we found a relevant Journal on Education Finance study from 1986, the same year Congress last passed tax reform. The analysis showed, using two different models, that eliminating this deduction would cause a drop in state and local education spending on average by 8.6 and 9.1 percent, respectively. Applying those percentages to education expenditures from fiscal 2014, that would amount to cuts of $48.9 billion and $51.8 billion from state and local budget for education, respectively. That’s a rough calculation, of course, and doesn’t examine how other changes to the tax code could impact state and local tax revenues. And things have changed quite a bit in the last 31 years, too.
2) The Classroom-Expenses Deduction
In 2015, Congress made “permanent” a provision that allows teachers to claim up to a $250 deduction on their taxes for money they spend out of their own pocket for classrooms supplies. Of course, what’s permanent today might be gone tomorrow, and it’s something education advocates are watching.
“When we do tax reform, everything is on the table. It does not matter whether the [benefits] were made permanent or not,” said Mary Kusler, the senior director of the National Education Association’s Center for Advocacy.
One potentially bad sign for that $250 deduction: the move by Trump and House Republicans to strip $2 billion in funding for professional development and class-size reduction measures. That’s a move that puts teacher-related jobs and expenses in jeopardy. That budgetary move by the GOP signals that they may not be particularly interested in preserving this carve-out for teachers in the federal tax code. Getting rid of this deduction, although it would be a very small piece of tax reform overall, would also help accomplish the Republicans’ stated goal of streamlining the tax code.
Here’s one way to put this issue in perspective: A survey for the 2012-13 school year found that teachers spent $1.6 billion of their own money on classroom supplies and materials. A separate survey conducted during the 2015-16 school year found that each teacher spent $600 on average of his or her own money on those supplies and materials every year.
3) Tuition Tax Credits
Yes, this is a vehicle GOP lawmakers and the Trump team could use to expand school choice. It’s been talked up a lot by some advocates, but perhaps significantly, not by Trump officials or members of Congress.
Creating a tax credit for those who support scholarships to private schools would run counter to that “streamlining the tax code” goal we mentioned above. But Secretary of Education Betsy DeVos and other friends of educational choice will be looking for some kind of victory, especially if lawmakers continue to give a cold shoulder to the Trump-DeVos budget plans to exapnd choice. This might be the way they get it.
4) Qualified Zone Academy Bonds
Simply put, these bonds use tax incentives to help pay for school construction and repairs. They can be used for public schools in certain circumstances.
As a candidate, Trump made infrastructure improvement nationwide a notable portion of his policy platform, and at least once he highlighted school construction as a need (using an expletive for emphasis). But his administration hasn’t put forward a comprehensive plan for infrastructure spending. Democrats have one, and it includes additional spending on school construction, but it’s up to Trump and GOP lawmakers to make it happen in Congress.
5) Mortgage Interest Rate Deduction
Like eliminating the state and local tax deduction, eliminating the deduction homeowners can claim for interest on their mortgage payments would be a very controversial shift in tax policy. This deduction isn’t immune from criticism, but if it’s eliminated, it would impact home sales and home valuations. That, in turn, impacts tax revenues available for schools.
“It’s certainly been within the discussions of tax reform,” Kusler said.
Photo: The U.S. Capitol in April. (J. Scott Applewhite/AP)
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