The Advocate, December 2017
Noelle Ellerson Ng
Associate Executive Director, Policy and Advocacy
AASA, The School Superintendents Association
As 2017 draws to a close, federal advocacy and its implications for education are far from boring. Between the need to avoid a federal shutdown—a tough task further complicated by considerations related to deferred action for childhood arrivals, an effort to raise the funding caps, a push to provide funding for the children’s health insurance program (CHIP), and more—and regular order, the fact that Congress is gunning to push through the GOP tax bill means the end of the year will be active, intense, and likely down to the last minute.
The House and the Senate have both passed their respective versions of the Tax Cuts & Jobs Act. Both bills are highlight partisan, relying exclusively on Republican support, and the GOP is committed to seeing this proposal through to completion to notch a win in its belt before 2017 draws to a close. As the president and Congress move forward with their efforts to overhaul the federal tax code, it is important to have an understanding of how the proposed reforms will affect education. Tax reform and related changes may not affect education as directly as changes in annual federal funding (appropriations), but the potential consequences are significant. That is how AASA came to be engaged in the current effort to overhaul federal tax code. AASA efforts in monitoring the tax bill have been focused on specific policies that will impact public education. We provided a summary of these issues in a memo this summer, and issued various resources with detailed analysis on the blog.
The bills will now go through the process of conference, where by the chambers will reconcile the differences that exist between the bills and emerge with one final bill that will then need to be adopted by both chambers and then signed into law by the president. Congressional Research Service prepared a white paper on what the conference process involves, which you can access here.
Education Impact: AASA has centered our engagement in tax policy on four specific provisions (state and local tax deduction; expansion of 529 plans; changes to school construction finance bond options; and reliance on deficit financing to pay for the tax cuts). Details of our position can be found in our letters of opposition as sent to both the House and Senate. There are other policies that impact education, some of which are included in the analysis below.
- State and Local Tax Deduction (SALT-D): Currently, tax payers can deduct the amount they pay in state and local taxes before calculating their federal income tax. Both the House and Senate bills make changes to how individuals can deduce SAL taxes, but not corporations. The bills allow for the deduction of property taxes (Capped at $10,000) and eliminate the deduction for income and personal property taxes).
- 529 College Savings Plans: Currently, tax payers can put money away to pay costs associated with postsecondary education. The benefit associated with these accounts (the accrued/compounded interest) is not taxed when the dollars are drawn down for eligible college expanses, and annual withdrawals are capped at $2000. Under both the House and Senate bills, the plans would be expanded to allow withdrawals of up to $10,000 per year and expand the plans to allow the funds to be used for costs associated with costs associated with public/private elementary/secondary education. The Senate bill also expands the program allows the withdrawals to be used for home-schooling expenses.
- Bonds: Currently, school districts have access to a variety of bonds and financing options when it comes to paying for/affording capital and infrastructure projects. These programs include Qualified Zone Academy Bonds (QZABs), advanced refunding, and private activity bonds. (You can read a good explainer on the blog.) The House bill eliminates QZABs, QCEBs, advanced refunding and private activity bonds. The Senate bill does not address tax credit bonds or private activity bonds, but does end advanced refunding effective December 31, 2017. If the changes go through, it would increase the costs incurred by school district association with financing school construction and renovation.
- Lack of Pay Fors: The tax cuts in the bill need to be paid for, and neither the House nor the Senate bill completely offset the costs associated with their plan. Instead, they have authorized themselves to raise the nation’s deficit over ten years to pay for the portion they aren’t paying for now (and (estimated to be $1.5 trillion). AASA is concerned that should a tax plan that is deficit-financed move forward, Congress will feel pressure to make cuts elsewhere, and that those cuts will fall to education and non-defense discretionary spending. Congress already struggles to avoid deep cuts to important education programs as they work to comply with existing federal funding caps and constraints; a debt-financed tax reform would only exacerbate this tension and the depth of cuts to important education programs.
- Teacher Expenses: Current law allows eligible educators (including teachers) to exclude an amount not to exceed $250 from income when those dollars were spent on books, supplies, professional development and other classroom expense. The House bill eliminates this exclusion; the Senate bill would double the maximum (to $500).
- College Affordability: Current law provides a variety of supports and tax incentives that help make higher education affordable. The House bill consolidates the current higher education tax credits, repeals the deduction for interest paid on student loans, repeals the deduction for tuition and related expenses, repeals the exclusion of interest from savings bonds used to pay education expenses, repeals the exclusion of tuition reductions, and repeals the exclusion of employer-provided education assistance. The Senate bill makes none of these changes.
- Child Care Tax Credit: Current law allows an individual to claim a $1,000 tax credit for a qualifying child under the age of 17. The House bill raises the credit to $1,600 and phases out at $230,00 income level (married). The Senate bill raises the credit to $2,000 and phases out at $500,000 income level (married).
AASA remains opposed to the bill. We will urge Congress to oppose the bill in its current form, to rewrite provisions to better support and strengthen public education, to get serious about ensuring benefits—and not just fiscal burden—fall to the middle class, and to identify pay-fors to offset the tax cuts built into the bill. Candidly, many of these asks individually make the bill way harder to pass. When you factor in that we need multiple significant improvements, and the partisan political pressure to see this bill over the line, it is a Sisyphean feat that lies ahead. We stand ready for the work, and will make the information you need available. Let us know if you need anything further, and we’ll continue to carry the good message of public education and to relay the importance of Congress making sure that tax policy supports education policy.