Education Funding

Tax Plan Poised to Change Deductions, Choice in K-12

By Andrew Ujifusa — December 12, 2017 4 min read
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Public education advocates are still lobbying against proposed changes to the tax code in Republican legislation that could have significant implications for state and local K-12 funding, while some school choice advocates are celebrating an impending change to college-savings plans that could boost private school options for parents.

Lawmakers from both the House and Senate will soon meet to try to reconcile their respective versions of the Tax Cuts and Jobs Act, which would be the first large-scale change to the federal tax system since 1986. Although the bills are similar in some respects, such as how they treat deductions for state and local taxes, they differ in others, including how much money teachers could deduct from their taxes for spending their own money on classroom supplies.

Advocates for traditional public schools are alarmed by the fact that both bills would reduce how much individuals can deduct their state and local tax burdens from their federal tax obligations. Each bill would allow individuals to deduct up to $10,000 in property taxes from their federal taxes, but state taxes could no longer be deductible. That could put pressure on some state governments to correspondingly cut their own taxes to reduce the overall taxation level of residents, and therefore, reduce public funds available for K-12.

Those advocates don’t want lawmakers to eliminate any of the current deductions, although getting rid of them is a major provision of both bills.

By contrast, Secretary of Education Betsy DeVos scored a win with the provision in both bills that up to $10,000 placed in 529 college-savings plans could also be used for elementary and secondary schools, including for private school tuition. That could boost the availability of school choice.

One remaining gap between the two bills: the classroom-expenses deduction for teachers. While the Senate bill would double the current deduction to $500, the House bill would eliminate it entirely.

‘Individualized Needs’

The House and Senate bills also increase the child tax credit, although by different amounts. The credit would rise to $1,600 in the House bill, while the Senate bill would boost it to $2,000. However, it’s unclear if all families would enjoy the full benefits of the increased tax credits, due to how different household income levels are dealt with.

If lawmakers can reach an agreement in the conference committee, then each chamber would have to vote again on the final bill before it is sent to President Donald Trump for his signature.

Public school advocates got some late help from Sen. Susan Collins, R-Maine, who shortly before the Senate’s 51-49 vote on Dec. 2 to approve the bill successfully amended it to ensure that $10,000 in property taxes could be deducted. Previously, the Senate version of the Tax Cuts and Jobs Act eliminated all deductions for state and local taxes.

On the other hand, they failed to stop the change to 529 plans written by Sen. Ted Cruz, R-Texas, and added to the measure nearly two hours before the bill itself passed. Cruz’s amendment also covers expenses related to home schooling.

Senators voted 50-50 for Cruz’s amendment, and Vice President Mike Pence broke the tie and voted in its favor. It was the second time in 2017 that Pence cast a decisive vote in the Senate on a major education issue—the first was the chamber’s vote to confirm DeVos as education secretary.

“By expanding 529s, which Americans already value greatly, we will help ensure that each child receives an education that meets his or her individualized needs,” Cruz said on the Senate floor before the vote.

Sen. Ron Wyden, D-Ore., the top Democrat on the Senate finance committee, where the tax bill originated, called Cruz’s amendment a “back-door assault” on public school funding.

The conservative Heritage Foundation’s political arm “key voted” Cruz’s proposal for 529 plans, meaning that the group factored senators’ vote on the amendment into its overall grades for lawmakers. The foundation and other organizations say the change will make it easier for more parents to enroll their children in the schools of their choice.

Others, however, say that the move represents little more than a tax benefit primarily for wealthier families and won’t do much of anything to make school choice accessible to lower-income parents.

The number of 529-plan accounts, and the amount of money in them ($258 billion in 2015, according to one estimate), have both risen in recent years. But a 2016 survey by an investment firm found that 72 percent of those polled had never heard of 529 plans.

Teacher Tax Deduction

Back in 2002, Sen. Collins successfully pushed to include the $250 deduction teachers can claim for spending on classroom supplies into the tax bill. But it remains to be seen if that deduction will change, or survive at all. In 2015, the Internal Revenue Service reported that 3.7 million tax returns included a claim for this deduction. And the Tax Policy Center estimated that for 2017, the deduction will cost the government about $210 million in tax revenue, or about 0.3 percent of the U.S. Department of Education’s budget.

In their tax rewrite, Republicans have publicly emphasized the need to simplify the tax code—through getting rid of many specialized deductions—while lowering overall tax rates. However, many teachers have argued that the $250 deduction is important recognition that they frequently spend their own money to help their students, even though the deduction itself often isn’t tremendously valuable on a relative scale.

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A version of this article appeared in the December 13, 2017 edition of Education Week as Tax Plan Poised to Change Deductions, Choice in K-12

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