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Education Issues at Stake as Senate Takes Up Tax Reform: State and Local Deductions, Teacher Supplies, Choice

By Carolyn Phenicie | November 27, 2017

Congress returns from recess this week, with the Senate set to turn its attention to tax reform, and education advocates are watching several key provisions.

Public school supporters are most concerned about Republicans’ efforts to remove federal deductions for state and local taxes.

The Senate bill would end federal deductions for those taxes entirely, while the House measure would limit deductions to $10,000 in property taxes. Any increase in federal taxes could put pressure on state and local leaders to cut taxes at that level, imperiling the largest sources of school funding.

Ending the deduction, as the Senate bill proposes, would mean a loss of $370 billion in state and local tax revenue over 10 years, endangering 370,000 education jobs, according to an analysis by the National Education Association, the country’s largest teachers union.

“It is irresponsible to put funding for 370,000 education jobs at risk. It is outrageous to give massive tax breaks for the wealthy and corporations paid for by students and working families. This is not normal. This is a terrible bill for the American people and Congress should soundly reject it,” NEA President Lily Eskelsen García said in a statement.

The direct impact to school districts probably would come in the 2019–20 school year, though school officials may begin bracing for it and budgeting more conservatively earlier than that, said Noelle Ellerson Ng, associate executive director for policy and advocacy at AASA: The School Superintendents Association. Residents of high-tax states like New York, New Jersey, Maryland, and California would see the highest tax increases if the state and local deductions are repealed.

Ellerson Ng isn’t optimistic that a final version of the bill would save the deductions.

There aren’t good policy arguments for overturning the federal break for state and local deductions, she said, but it provides a huge amount of revenue that Republicans can use to offset the other large cuts they’re making. Other substantial savings, like ending tax breaks for retirement savings, have been considered and rejected.

“That’s a huge obstacle that we need to overcome, and other big-ticket items are off the table in the way that [the state and local tax deduction] isn’t,” she said.

She’s also concerned about big deficits in future years, ones that could mean cuts to federal education funding.

A drop in state and local revenues would also affect public colleges, one of several concerns higher education advocates are raising, alongside fears about taxing graduate students’ tuition waivers and ending a tax break on student loan interest, Axios reported.

Other K-12 education issues lawmakers will have to settle in any final version of the bill include:

Charter school buildings

The House bill would end key provisions used by charter schools to finance new school buildings, in some cases making new construction costs prohibitive, charter leaders told The 74.

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Educators Warn of ‘Devastating’ Consequences for Charter Schools in New GOP Tax Bill

The Senate bill doesn’t eliminate two of the key provisions charters most often used, but it, like the House bill, ends Qualified Zone Academy Bonds, which public schools use to finance renovations.

Teacher supplies

The House bill eliminated the $250 deduction educators can take for out-of-pocket classroom expenses, a move that’s been particularly pilloried as a counterweight for the generous deductions given to high-income earners. The Senate bill, meanwhile, doubles the deduction to $500.

Teachers spent anywhere between $495 and $672 of their own money on classroom supplies a year, depending on their school’s poverty level, according to a survey by Scholastic. Principals spent between $514 and $1,014 on average.

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Teacher Voice: Taking Away $250 Tax Deduction for School Supplies Speaks Volumes About How We Value Teachers

The deduction, which reduces taxable income rather than providing a credit, yields most teachers about $40, according to The New York Times. House Republicans have argued that a simpler tax code with better benefits would save teachers more in the long run, according to the Times.

School choice

The two chambers’ bills also treat tax-preferred school choice programs differently. The House bill proposes ending the Coverdell program, a small, income-limited tax-free savings plan for K-12 education, and instead expanding the popular 529 programs already in existence to help families save for college. The Senate plan, like the House’s, allows families to begin saving during pregnancy rather than at birth, but doesn’t change the limitations on 529 plans.

School choice advocacy groups, while expressing disappointment that there isn’t a large-scale tax credit scholarship program in either bill, have urged the Senate to adopt the House’s idea.

“For those elected officials committed to the idea of doing something about income equality, the best policy toward that end would be to empower non-wealthy Americans to have the education options they want for their children. That will ensure the next generation is better equipped to prosper in a 21st century economy,” Peter Murphy, vice president of Invest in Education, a nonprofit education group, wrote in The Hill.

The Senate returned to Washington Monday and was expected to take up the tax bill later this week. Its chances look rocky, with as many as a half-dozen Republicans expressing reservations, Politico reported. Additionally, there are limited session days before the end of the year, the Republicans’ self-imposed deadline for tax reform, and numerous other issues, like spending bills, to consider in the interim.

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