What does the GOP tax plan mean for public K-12 education? by Jeremy Anderson

Understandably, much has been written about the ways in which the new Republican lead tax overhaul bill will affect higher education. Though these are serious and pressing issues, the impact of the tax plan on K-12 education hasn’t received as much attention. There are segments of the tax overhaul from both chambers (the final version of which is still being deliberated on in a conference committee) that have direct and indirect impacts on public schools. These segments have the potential impact of weakening many local governments’ abilities to fund their schools and they boost the ability for wealthier individuals to attend private schools. The settled upon tax legislation could be signed by President Trump by as early as Christmas.

Eliminated or Doubled? The Educator Expense Deduction

Under current tax law, school teachers are able to deduct classroom expenditures up to $250 in what is referred to as the educator expense deduction. This helps teachers in K-12 schools pay for school supplies for their classrooms.

In the House of Representative’s version of the tax bill, the educator expense deduction is eliminated. Purchasing classroom supplies out of a teacher’s own pocket is a reality for many teachers, including those earlier in their careers. A 2013 study by the National School Supply and Equipment Association found that K-12 teachers, on average, spent $500 a year out of their own pockets on school supplies. This serves as somewhat of a one-two punch for new teachers just coming out of colleges or universities as the House bill also eliminates the student loan interest deduction.

This is one area where the two different bills vary wildly. In the Senate version of the bill, the educator expense deduction is actually doubled. Under this version of the bill teachers could deduct up to $500 in classroom expenses every year. That would be a helpful resource for any teacher, particularly those teaching in underfunded school districts.

Tax-Free Savings for Private School Tuition

In one of the final hours before the Senate voted to pass their version of the tax bill, Senator Ted Cruz (R-Texas) introduced an amendment that expands 529 savings accounts to incorporate K-12 expenses. A 529 savings plan is a tax advantaged savings plan (similar to a Roth IRA) that is designed to encourage saving for future college costs. 529 contributions go into the account after tax, but are then able to grow tax-free. The plan currently has 12.5 million active accounts, is offered by nearly every state, and is relatively popular, particularly with wealthier families. Many states also offer a full or partial tax deduction for contributions. Under the current law money withdrawn from the plan must be used for qualifying higher education expenses within the same tax year.

Under the Cruz amendment, parents can put money into the 529 plans that can be used for private schools, religious schools, and homeschooling. They can spend up to $10,000 a year from the plan. In a show of administrative support, Secretary of Education Betsy DeVos praised a virtually identical amendment in the House bill saying, “This is a good step forward, reflecting that education should be an investment in individual students, not systems.”

It is unclear what the overall point of this amendment is other than to allow wealthier families to grow money for private/alternative schooling in a tax-free haven. The expansion of 529 plans for K-12 tuition will likely only benefit high-income families who can afford to put away savings toward their children’s education for both private/alternative schooling and college tuition. This essentially helps to subsidize private K-12 education for many families who could afford it and may have sent their children their anyways.

Due to the interplay of state, local and federal taxes that fund our public schools, this tax bill is essentially a school funding bill. I remain doubtful that Congress is thinking of it that way and public education will bear the cost.

For advocates of school choice, this amendment provides no inroads for lower or middle-income families to gain access to private schooling, if they so choose. Even the president of the Thomas B. Fordham Institute, a conservative education policy think tank that advocates school-choice, said of the amendment, “This provision will help a relative handful of affluent families who are already choosing private schools. It seems unlikely to expand school choice options for families in the middle or working classes.” What is perhaps even more troubling is how the expansion of 529 plans will work together with the elimination of state and local tax deductions.

The Elimination of State and Local Tax Deductions  

Both the Senate and House versions of the tax bill fully repeal state and local tax deductions (SALT). Filers will no longer be able to deduct their property taxes or their state and local income or sales tax. This deals a real blow to states with higher taxes such as California, New York, and New Jersey. The House version of the bill makes a concession for an itemized deduction for property taxes up to $10,000.

The issue for public education is that it is almost entirely funded by state and local taxes. Nationally, federal funds account for only around 9% of public school funding. The ability for taxpayers to deduct state and local taxes has made it easier for schools to take in revenue. School districts are able to use this revenue to attract teachers, expand curricula, and provide support services for students. Taxpayers are willing to accept higher taxes that go to education, in part because they can deduct them from their federal taxes. Cutting the deductions may introduce pressure on local lawmakers to cut their own taxes in response, some of which would go to education.

The elimination of these deductions, along with new incentives for wealthier parents to consider private schools, could be detrimental to the public schooling system as it could trigger the flight of wealth and upper-middle class families. Richard Kahlenberg, a senior fellow at the Century Foundation, a nonprofit think tank, writes that this plan could potentially exacerbate even further the racial and class-based segregation that many public schools face. Additionally, the acceleration of this flight would have political consequences for the strength of public schools in advocating greater levels of funding in the future. A potential escalation in the departure of families from public schools deals a blow to the public K-12 system that is already greatly strained. The expansion of 529s gives wealthier families an easier road to opt-out of public schooling, while the same tax legislation may further harm the funding of public schools by eliminating state and local tax deductions.

The GOP tax bill and K-12 education

The last-minute addition of amendments such as Sen. Cruz’s and the speed at which this bill has moved through Congress produces real doubts concerning the extent to which the effects to public K-12 education were considered. The overall goals of the bill seem to be incoherent. As my colleagues Barbara Hou and Rachel Montgomery recently wrote, “As students, educators, and citizens we must call on our legislators and representatives to be more transparent and collaborative in these processes.”

While it is not a secret that conservative legislators and this administration have sought to expand school choice initiatives, Sen. Cruz’s amendment is unlikely to accomplish the goal. Congress remains split on whether or not the educator expense deduction will be eliminated or doubled. Finally, in an effort to use reconciliation to pass the bill, SALT deductions were repealed which may harm the ability for higher taxed areas to fund their local public schools going forward.

The combined effects of these provisions are important to understand. There are also numerous other downstream policy and funding consequences to public education that can come from this bill. Due to the interplay of state, local and federal taxes that fund our public schools, this tax bill is essentially a school funding bill. I remain doubtful that Congress is thinking of it that way and public education will bear the cost.

Jeremy Anderson is a PhD student in the Education Theory and Policy program at Penn State University. He holds a Master of Arts in Teaching from the University of Pittsburgh. Jeremy is a former high school social studies teacher whose interests include school consolidation, school district funding and equity, and technology in education.