Proposed changes to the federal tax code unveiled by Republican lawmakers at the start of this month would affect teachers’ tax burden, private and charter schools, and significant amounts of funding for public schools.
Two different versions of the Tax Cuts and Jobs Act were introduced in the House and Senate this week. The bills don’t represent a direct increase or decrease for federal spending on schools. However, it could affect both K-12 funding systems and educators’ pocketbooks in several ways.
If the bill passes Congress and is signed into law by President Donald Trump, it would be the biggest shift to the federal tax system since 1986. Republicans are aiming to pass the legislation by the end of the year, and the House Ways and Means Committee passed its version of the legislation this week.
But the proposals face a long and potentially difficult road ahead in Congress.
Perhaps the biggest direct impact in the legislation would be the repeal of deductions taxpayers could claim on several state and local taxes (known in Washington jargon as SALT). In the House version, although they could still claim a tax deduction for up to $10,000 of local property taxes, taxpayers could no longer deduct state and local income and sales taxes from their federal tax returns. In the Senate bill, the property tax deduction as well as the income and sales tax deductions would be repealed.
Republicans say ending the deductions are part of the bills’ broader attempts to simplify the tax code and also make the tax landscape fairer across states. But some education advocates are worried that with many taxpayers forced to declare more income for federal taxation under this proposal, state and local governments would feel significant pressure to cut their own tax rates in order to relieve at least some of the new burden.
State and Local Impact
That, in turn, could shrink the tax revenue available for state and local leaders to spend on public schools, particularly in states where taxes are relatively high.
A 2011 report from the Center on Education Policy, a research organization founded by a former Democratic aide on Capitol Hill, estimated that ending all state and local tax deductions would deprive schools of $17 billion in funding. And the deductions were worth $97 billion in state and local government funding in 2016, according to a separate analysis by former U.S. Department of Education official Michael Dannenberg.
What does the GOP tax bill mean for teachers? Watch the video.
“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,” said Noelle Ellerson Ng, the associate executive director of AASA, the School Superintendents Association.
The House and Senate bills would also end the $250 tax deduction teachers, principals, and other educators can take for personal money they spend on classroom supplies. The deduction is structured so that teachers and others don’t need to itemize their tax returns in order to claim it.
Lawmakers created the deduction for educators in the tax code in 2002. Sen. Susan Collins, R-Maine, pushed to introduce it into the tax code, and she could be a key vote on any Senate effort to overhaul taxes.
Teacher Deduction in Jeopardy
For the 2015 tax year, there were more than 3.7 million tax returns in which taxpayers claimed the classroom-expenses deduction, according to information from the Internal Revenue Service. (That figure doesn’t equal the number of educators who actually claimed the deduction.) The total amount of money subsequently deducted from taxable income was $950 million, the IRS said.
The repeal of the $250 deduction represents a relatively small change to the tax code. But it is used widely by teachers and others, and in theory, the end of the deduction could affect which tax bracket some teachers find themselves in.
During a Ways and Means Committee hearing this week, Rep. Erik Paulsen, R-Minn., touted the broader economic benefits of the tax bill, saying, “This helps teachers.” Based on information from Congress’ Joint Committee on Taxation, a teacher earning $55,100, the average salary for teachers nationwide, would see a tax cut of $660 in 2019 and $275 in 2027. (Both numbers are in comparison to 2017.)
However, Rep. John Lewis, D-Ga., singled out the end of the $250 deduction for teachers during the same hearing, asking, “How can we punish teachers who are just trying to buy supplies for their classrooms?”
Expansion for Choice
Although U.S. Secretary of Education Betsy DeVos has failed so far to get traction for her school choice expansion proposals in Congress, lawmakers did make one change that could make it easier for some to go to private schools.
The tax bill would allow 529 college-savings plans to also be used for K-12 expenses of up to $10,000 annually, including for private school tuition. Contributions to these plans are tax-deductible. The legislation would simultaneously end Coverdell accounts, in which tax-deferred savings can be used for up to $2,000 annually for K-12 expenses.
DeVos hailed the move as a good step forward for school choice. The idea has long been a top K-12 priority for the conservative Heritage Foundation, where the director of the Center for Education Policy, Lindsey Burke, said the growing amount of savings in 529 accounts represents an increasing awareness of the accounts in general. That means, she said, they could represent significant growth for private school choice. On Heritage’s website, Burke wrote that in general, the bill’s change to 529 accounts “would enable families to save for K-12 education-related expenses while increasing their ability to pay for education options outside the public school system.”
But other organizations supporting school choice, including EdChoice and the American Federation for Children, said that while they supported the change to 529 plans, it wouldn’t be helpful in general to lower-income families. (DeVos used to lead the American Federation for Children.)
A 2016 survey by Edward Jones, an investment firm, found that 72 percent of Americans had not heard of 529 college-savings plans. And a 2014 survey conducted for the College Savings Foundation reported that about 63 percent of those using 529 plans had annual household incomes of $100,000 or more.
“Generally, I’m working with high-net-worth individuals” who use 529s, said Bob Williams, the senior vice president and managing director of the Simmons First Investment Group in Little Rock, Ark.
Charter school advocates have their own beef with the House bill, since it would end a charter’s ability to pay for a new school building with proceeds from bonds that are tax-exempt. Charters’ ability to refinance outstanding debt with those same tax-exempt bonds would also end under the legislation.
“Borrowing on a tax-exempt basis saves charter schools millions of dollars every year—dollars that can remain in the classroom,” Nina Rees, the president and CEO of the National Alliance for Public Charter Schools, wrote in a letter to lawmakers this week after the bill was released.
