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Why Spending on Schools Could Take a Hit Through the GOP Tax Proposal

By Andrew Ujifusa — September 28, 2017 3 min read
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When the GOP framework for overhauling taxes was released Wednesday, we focused largely on the absence of any mention of a tax credit to support private school choice. But there’s another element to tax reform that could have a very significant impact on education spending, one that would almost certainly dwarf the numbers associated with any new tax credit for school choice.

That’s the elimination of the state and local tax deduction. The Republican framework reportedly calls for the elimination of this deduction available to taxpayers, although it isn’t specifically mentioned in the blueprint released Wednesday. It helps the GOP accomplish one of its stated goals: simplifying the tax system.

We wrote about the issue in the summer. Here’s what we said at the time:

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.

Back in 1986, the last time Congress passed comprehensive tax reform, a study of this issue found that state and local spending on education would decrease by up to 9.1 percent if the deduction were to be tossed out. A lot has changed since then, of course.

Here’s more: On the one hand, a 2016 estimate from the Tax Policy Center reported that getting rid of this deduction would increase federal revenue by $1.3 trillion over 10 years. That’s more money coming to Washington that, in theory, could be made available for federal education funding. And to the extent tax cuts generate more economic activity, there’s the potential for the creation of more tax revenue at all levels of government.

However, the same study said the move would increase taxes for nearly one quarter of U.S. taxpayers. And the $1.3 trillion figure neglects the potential negative impact of the overall tax cuts and other restructuring on other areas of revenue. There could ultimately be much less revenue available for K-12 from Washington.

In a statement opposing the elimination of the state and local deduction, AASA, the School Administrators Association, said that, "[The deduction] prevents double taxation for local residents. Elimination of this deduction would increase tax rates for certain tax payers, reduce disposable income, limit ability and support for local taxes, and damage local, state and national economies.”

In a March piece for Democracy Journal, Michael Dannenberg, the director of strategic initiatives at Education Reform Now and a former Obama education official, noted that the value of the federal subsidy for state and local taxes (through the state and local deduction) stood at $97 billion for 2016.

“The federal government subsidizes almost all K-12 public education funding in the form of state and local income, sales, and property tax deductions,” Dannenberg wrote, who added that getting rid of the deduction would “decimate public education.”

Republicans in Congress from states with relatively high income taxes might torpedo this idea. And in general, passing legislation implementing this is a tough political climb. (We don’t yet know how any tax bill would impact school choice, deductions, or other isses we wrote about in August.) But if the GOP includes this change to the tax system in its plan and passes it, its impact on schools could be felt relatively quickly.

Photo: President Donald Trump addresses a joint session of Congress on Feb. 28. (Pablo Martinez Monsivais/AP)


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