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Teacher Deduction for Classroom Expenses Scrapped in GOP Tax Bill

By Alyson Klein & Andrew Ujifusa — November 02, 2017 7 min read
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The Republicans’ much-anticipated legislation to change the federal tax system includes a victory for school choice advocates: It would allow families to use up to $10,000 in savings from 529 college savings plans for K-12 expenses, including private school tuition.

Overall, the bill released Thursday would slash corporate and some individual tax rates, offsetting the cost by nixing other deductions. That includes a $250 deduction that teachers can use to cover classroom expenses, such as books, art supplies, and rewards for students. The bill would also eliminate the deduction for state and local income and sales taxes, a step advocates warn could pinch K-12 spending at the district and state level. More on that below.

And the legislation would put an end to the so-called Coverdell Accounts, tax-free accounts which families currently can use to cover up to $2,000 of K-12 costs, including private school tuition, in favor of the 529 change. Families could also use 529s to cover the cost of apprenticeships and could open an account when a child is “in utero” or “unborn.” We previewed the possibility of a 529 benefit for K-12 back in August. It has strong support from the Heritage Foundation, a conservative think tank.

“529s are a strong and proven tool to help make education more affordable for middle-class families,” said U.S. Secretary of Education Betsy DeVos in a statement. “This is a good step forward, reflecting that education should be an investment in individual students, not systems. I look forward to continuing to work with Congressional leaders to ensure all families have equal access to the education that meets their child’s unique needs.”

But advocates for public education are none too happy with the change.

“We are disappointed, but not surprised, that Republicans would incentivize wealthy Americans to set aside more resources for private school education in their bill,” said the National Coalition for Public Education in a statement. “By ending the Coverdell Education Savings Account program and allowing past and new savings to flow into 529 accounts—which eliminate donors’ income limitations and allow for higher contributions—they are enabling parents to have a new option to grow their assets tax-free and redirect larger amounts of funding to private, religious schools.”

And Lily Eskelsen García, the president of the National Education Association, argued that the plan would only benefit “wealthy” families who are able to put away money for private school.

The inclusion of 529 plans for K-12 in the tax package represents the first tangible win in the Trump era for school choice, a huge priority for DeVos.

But a tax credit for donations to fund private school scholarships, which some speculated would be a part of changes to the federal tax code, does not appear to be in the bill. Congress has also rejected the administration’s budget proposals to create a federal voucher program and allow some money for disadvantaged students to follow children to the public school of their choice.

The American Federation for Children, the school choice advocacy organization DeVos started, cheered the change, but said it will continue pushing for proposals that will expand K-12 options for poor children.

“Any effort to expand the ability of parents to choose the best education for their child is a good thing. We certainly support this for those families who have 529s,” said Tommy Schultz, an AFC spokesman. “However, we are also concerned about and focused on those families who do not have 529s, typically low-income families who aren’t able to put away those savings, who are looking for more and better educational options for their children.”

State and Local K-12 Impact

The other big news for education in the proposed tax plan is that GOP lawmakers want to scrap the deduction for state and local income and sales taxes—a move education advocates warn could end up depressing revenues for public schools. However, in something of a compromise, Republicans have agreed to keep the deduction for local property taxes in the federal tax code, up to $10,000, according to a summary of the legislation posted on the House Ways and Means Committee website.

For much of this year, Congress has discussed getting rid of both state and local tax deductions—known in Washington jargon as SALT or SALT-D—as part of a broader plan to help offset various tax cuts.

Not all taxpayers take these deductions. But many education advocates have been alarmed at the prospect. They say that without the federal deduction for those taxes, states would feel significant pressure to cut their own taxes, which would in turn strip out a lot of revenue for public schools. Groups like the American Federation of Teachers and AASA, the School Superintendents Association, are adamantly opposed to any changes to the state and local deductions.

Noelle Ellerson Ng, AASA’s associate executive director for policy and advocacy, said that keeping one deduction but tossing out the others “should be something that is alarming, not a point of compromise.” And she slammed lawmakers for apparently agreeing to move ahead with the proposal without seeing more data about its impact.

“It shows how much this conversation of tax reform is about making numbers add up and not making it work for the people they represent, particularly the people who rely on the state and local tax deduction, a lot of middle class people, and our nation’s public school system,” Ellerson said.

But some conservatives have supported the move to get rid of both deductions for a while now. In a 2013 article, Heritage Foundation Research Fellow Curtis Dubay wrote that the deductions essentially allowed state and local governments to shirk full responsibility for high taxes. “Tax reform should eliminate the state and local tax deduction because it encourages state and local governments to raise their taxes higher than they would without it,” Dubay wrote.

It’s not clear what the impact could be on K-12 funding if lawmakers keep the property tax deduction, but not the rest. A report by the Center on Education Policy from 2011 estimated that the loss of state and local tax deduction overall would deprive public schools of $17 billion, based on 2009 data. For perspective, that’s bigger than Title I, the pot of money for disadvantaged students that’s the single largest federal source of funding for public education.

However, that number, as a representation of potential lost revenue for schools, could be a lot smaller if the local property tax deduction stays on the books. And even for that $17 billion figure, it’s still a relatively small percentage of overall funding for K-12 in the U.S, which stood at $634 billion in the 2013-14 school year.

Americans Against Double Taxation, which opposes getting rid of the deductions and represents groups representing state and local governments among others, wasn’t pleased by the compromise on tax deductions. The group said in a statement that the move “would insert the heavy hand of Washington into state and local finance decisions, dictate winners and losers among states, and unfairly penalize taxpayers in states that rely significantly on income taxes.”

Deduction for Teachers Eliminated

Teachers’ unions are unhappy about the elimination of the state and local tax deductions—but also upset about the decision to scrap the tax deduction to help teachers furnish their classrooms. During the 2012-13 academic year, teachers spent a total of $1.6 billion out of their own pockets for classroom expenses, according to a survey by the National School Supply and Equipment Association. 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.

“As educators spend more and more of their own funds each year to buy basic essentials, Republican leaders chose to ignore the sacrifice made by those who work in our nation’s public schools to make sure students have adequate books, pencils, paper and art supplies,” Eskelsen García said.

Under the bill, the tax credit for those with dependent children would increase from $1,000 to $1,600. And the measure would eliminate deductions for higher education loan interest. See a summary of the bill here.

The House of Representatives is expected to vote on the bill before Thanksgiving, with the aim of passing it by the end of the year.

Photo: House Ways and Means Committee Chairman Kevin Brady, R-Texas, whose panel is charged with writing tax law, talks to reporters on Capitol Hill last week in Washington. (J. Scott Applewhite/AP)