Congress is making headway on big changes to the federal tax code that could affect a wide range of issues in education, from out-of-pocket teacher expenses and school choice to—more indirectly—pressure on federal spending for schools.
The House version of the Tax Cuts and Jobs Act passed by a 227-205 vote this month. The same week, the Senate finance committee approved its version of the legislation with the same name, and a full vote in the Senate was expected after the Thanksgiving holiday. So far, the GOP-backed bills have not attracted any Democratic support, but complex challenges remain for lawmakers seeking to reconcile the two bills and get them to President Donald Trump for his signature.
If some of the proposed changes do become law, the shifts could create additional pressure for the federal government to cut discretionary spending, including for the U.S. Department of Education. However, recent precedent doesn’t create a clear case for that, and the tax bills themselves don’t directly cut or add to federal K-12 spending levels.
Here’s a rundown of key areas to watch in the complex federal tax-code debate:
State and Local Funding
Among other significant shifts in tax policy, proposals in both chambers would end several deductions for state and local income and sales taxes. The House bill would allow a deduction for local property taxes of up to $10,000 annually, but the Senate bill would eliminate all state and local deductions.
Education advocates warn that ending those deductions would push state and local governments to cut their own taxes in response to ease financial pressure on taxpayers, particularly in states with relatively high taxes that tend to be controlled by Democrats.
The impact of such changes could vary widely between states and local communities. The tax proposals also would double the standard deduction individuals and households can take on income subject to federal tax, which could ease the state and local tax burden even with the loss of other deductions.
There’s also a big difference between the bills when it comes to deductions specifically tailored for educators.
The House bill would repeal the $250 deduction teachers—as well as principals and others—can take for classroom supplies they buy out of their own pockets. However, the Senate legislation to be considered by the full chamber would actually double that deduction, up to $500. Sen. Susan Collins, R-Maine, a key GOP vote in her chamber, pushed for the deduction to be introduced into the federal tax code back in 2002.
Impact on Teachers
Republicans in Congress who say they’re looking to simplify the tax code while also delivering relief to many individuals and households have been focused on eliminating several deductions.
The two national teachers’ unions, though, have decried the House bill for removing the $250 deduction, arguing that the move would punish teachers who are generally expected—although not officially required—to spend at least some of their own income to buy pencils, books, software, and other classroom supplies.
A notable gap also exists between the House and Senate proposals when it comes to the controversial issue of school choice.
The House bill would allow money in 529 college-savings plans to be used for educational expenses at the elementary and secondary level, including for private school tuition. The cap on such expenses would be $10,000 annually. But the Senate bill does not include that change to 529 plans. The Senate and House bills would also allow individuals to contribute to 529 plans when a child is in utero or “unborn.” The House bill does the same and also would allow 529 savings to be used for apprenticeships.
Two amendments to the tax bill that would have expanded private school choice were not included in the legislation sent to the full chamber. One from Sen. Orrin Hatch, R-Utah, the chairman of the Senate finance committee that sent the legislation to the full Senate, would have established a charitable deduction for religious instruction. The other, from Sen. Tim Scott, R-S.C., would have created a new tax-credit program for corporations and individuals making donations to groups supporting private school scholarships for low- and middle-income families.
DeVos Weighs In
U.S. Secretary of Education Betsy DeVos praised the House proposal as a sound way to expand educational options for parents, as did several school choice advocacy groups. If changes to 529 plans become law, it would be the first federally backed expansion of school choice under the Trump administration.
However, 529 plans tend to be used by relatively well-off families. And while the American Federation for Children, the school choice advocacy group DeVos used to lead, praised the proposed change to the savings plans, the group also expressed concern in a statement before the House bill passed that the proposal wouldn’t necessarily do much to expand school choice to disadvantaged students.
In a letter earlier this month to the Senate, 43 education groups also expressed concern about the tax bills’ long-term impact on federal K-12 spending.
“If tax reform is deficit-financed and adds to the federal debt, as both the budget resolution and the House bill would allow, there will be increased pressure for Congress to curb direct spending for education and all discretionary spending,” wrote the groups, including the two national teachers’ unions as well as associations representing school boards and administrators.
Since fiscal 2011, the national debt has grown from $13.6 trillion to $20.5 trillion. The Education Department’s budget is now $68.2 billion—almost exactly what it was in fiscal 2011. And it has not varied a great deal in recent years. The biggest change was a one-year dip of about $2.4 billion, to $65.7 billion in fiscal 2013.
“If only we had seen the type of fiscal discipline ... that any sort of downward pressure should have caused, we’d be in a better place,” said Lindsey Burke, the director of the Center for Education Policy at the conservative Heritage Foundation.
Noelle Ellerson Ng, the associate executive director of AASA, the School Superintendents Association, conceded that there’s no direct correlation between increased debt levels and decreased education funding. But she said, “If it is not [lawmakers’] intent to cut education funding, I would love to get that in writing.”
Ng added, “There will be an additional fiscal burden on annual appropriations for years to come.”
