How education fared in Congress’ tax deal compromise: Teacher tax deductions, charter financing & 3 more noteworthy fixes
Carolyn Phenicie | December 18, 2017
Weeks after fighting over tax reform — including pitched battles involving several education issues — GOP leadership released a final compromise late last week.
On higher education, the bill ultimately didn’t include provisions that alarmed college and university leaders the most, like taxing graduate students’ tuition benefits. It does include a tax on university endowments, though one that would hit fewer colleges than previous iterations of the bill, Inside Higher Ed reported.
In the K-12 space, lawmakers had to make crucial decisions on the federal tax treatment of state and local taxes that fund the bulk of school spending, approving an expansion of a college-saving program to include K-12 school choice, and preserving a small but symbolic deduction for teachers’ supplies.
Lawmakers in both chambers are set to vote on the bill later this week; here’s where five key education provisions shook out.
1.) Charters breathe a sigh of relief on financing.
The final conference report does not end non-profits’ ability to float tax-free bonds or New Market Tax Credits, key financing tools that charter schools use to fund construction of new school buildings, one of their biggest challenges. Charters, unlike district schools, don’t get separate budgets for school construction and can’t rely on low-cost, taxpayer-backed bonds.
Nina Rees, president and CEO of the National Alliance for Public Charter Schools, said charter leaders are “grateful” that those two finance tools were preserved.
“Though imperfect, these financial tools are vital to acquiring safe and appropriate charter school space,” she said in a release.
Qualified zone activity bonds, which are issued through school districts and help with maintenance of existing schools, weren’t kept, a possible hardship for some schools, Rees added.
“We look forward to working with Congress in the coming year to develop financing tools that will serve our schools, students and taxpayers more effectively,” she said.
2.) The bill includes a school choice expansion.
The deal includes an expansion of 529 savings plans, previously used only for college, to cover private K-12 school and homeschool costs. Families can save up to $10,000 for those expenses.
It doesn’t allow the creation of 529 plans for unborn children, as the House’s bill would have; Senate rules allowing for fast-track consideration of the bill wouldn’t permit it.
Choice advocates have said the program is a good start but have pointed out that unlike, say, a tax-credit scholarship program, the 529 expansion won’t help low-income families who couldn’t save the money to begin with and whose children are often assigned to the lowest-performing schools. Democrats and unions have said the tax breaks will hurt local schools.
3.) There are some deductions for state and local taxes.
The final bill would allow taxpayers to deduct up to $10,000 in state and local taxes, a combination of property taxes and sales or income taxes, every year.
Previously, local and state leaders could raise taxes with the knowledge that taxpayers would be able to deduct at least some of them from their federal tax bills, reducing the overall burden. Eliminating this deduction, as the House bill originally advocated, or limiting it, could make taxpayers less likely to support tax hikes at the state and local level, or call for tax cuts, especially in high tax states like New York, New Jersey and California. State and local funds make up about 90 percent of school funding.
“While deduction on [the first $10,000] still matters for individual tax burden, the federal incentive to support public schools disappears once you hit the cap. Voters will hit the cap in many states and districts,” Nora Gordon, an economics professor at Georgetown University, tweeted.
Advocates have also feared that spending hawks will call for federal spending cuts to offset the looming costs of the GOP-led tax package, potentially prompting more funding cuts for K-12 schools.
“People in the top tax bracket are now getting even more money. … But middle-class families are still left with a state and local tax ‘deal’ that’s still going to raise their taxes while cutting important local services like public schools, police and firefighting,” Randi Weingarten, president of the American Federation of Teachers, said in a statement.
4.) In the end, no change to teacher tax deductions.
The compromise maintains the $250 deduction educators may take every year for supplies they buy out of their own pocket, after the House had proposed eliminating it and the Senate doubling it to $500.
Republicans had argued that it was necessary to pay for the other tax breaks in the bill and that teachers would ultimately come out ahead, given the other cuts, but Democrats used it as a counterweight to the deductions given to the wealthy.
“Clearly, Congress heard the outcry from educators and parents when House Republicans tried to eliminate the $250 deduction for school supplies,” Lily Eskelsen García, president of the National Education Association, the country’s largest union, said in a statement to CNN. “But the overall GOP tax bill is full of giveaways to corporations and the wealthy. It’s outrageous that working families will now have to pay that bill.”
5.) It expands the child tax credit.
The compromise would raise the child tax credit to $2,000. The first $1,400 — up from the $1,100 first proposed — is fully refundable if a family’s tax liability is that large. The provision was included reportedly to woo Sen. Marco Rubio, who threatened to vote against the bill if it didn’t include a stronger benefit from low-income families. He had originally sought to make the credit available to families even if they didn’t have any tax liability, but that provision was rejected during Senate floor debate. The credit would phase out for couples making more than $400,000 annually.
Advocates have said the final bill might not do much to help low-income families, some of whom make so little they don’t pay any federal income tax. According to the left-leaning Center on Budget and Policy Priorities, 10 million children would be in families that would see no more than an additional $75 a year, and another 14 million would get less than the maximum increase allowed.
Early education advocates had hoped the bill would expand the child care tax credit, though there was ultimately no change to it.
This article was published in partnership with The 74.