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Senate Tax Bill Ends Deductions for State and Local Taxes, Classroom Supplies


The Senate on Thursday released its version of tax reform, and in one important respect it could have a bigger impact on spending for public schools than the House bill released last week.

The Senate's GOP-only version would eliminate all the current deductions people can take on the federal tax returns for state and local income, sales, and property taxes. That could lead to a bigger federal tax burden for many individuals. So why is that a big deal for education?

Education advocacy groups in Washington have been alarmed by the House legislation's provisions to strip away several state and local tax deductions, although the legislation would allow taxpayers to deduct up to $10,000 in property taxes. They've argued that without those deductions, many people's federal tax returns would rise dramatically (and unfairly), and that would subsequently put a lot more pressure on state and local governments to cut their own tax revenue to compensate, which would reduce the pot for public schools.

Since the Senate bill would get rid of all state and local tax deductions, the downstream effects on state and local K-12 spending would only increase, according to those advocates. 

Conservatives, however, have argued that end of state and local deductions would still leave major taxation decisions up to state and local governments. At the same time, they also say that getting rid of those deductions for federal taxes would push high-tax states typically run by Democrats to rethink their approach to taxation and spending.

In addition, the Senate bill would end the $250 tax deduction teachers can take for buying classroom supplies out of their own pockets, just like the House bill does. (See page 28 of this description of the Senate bill.) Sen. Susan Collins, R-Maine, successfully pushed to get that deduction into the federal tax code back in 2002. 

The House Ways and Means Committee approved its version of the Tax Cuts and Jobs bill Thursday. It's possible many teachers could ultimately see a tax cut under the House bill, although that outcome depends on a variety of factors. 

250,000 Educator Jobs in Jeopardy?

The National Education Association issued an analysis Thursday saying that 250,000 education jobs would be "at risk" under the House proposal. The teachers' union's analysis also said that if it became law, the House tax plan would also put $246 billion in education funding in jeopardy over the next decade. Note that the NEA isn't saying here that the House tax bill, if it becomes law, wouldn't directly lead to funding or jobs cuts of that size, only that the money would be put at risk. 

The NEA's analysis took IRS data from 2015 showing that the value of the state and local tax deductions was $91 billion in tax revenue the federal government otherwise would've received that year, and data from the U.S. Census that 27 percent of general revenue from state and local sources goes to K-12 operating budgets. 

Tom Zembar, a senior policy analyst at the NEA who produced the analysis, said that the repeal of the federal property tax deduction, as proposed in the Senate bill, would only increase the potential impact on state and local public school spending. But he acknowledged that even if any repeals of state and local deductions make it into law, it's impossible right now to accurately pin down the precise reactions of state and local governments in terms of their own tax policy. There could be huge variation across state lines, Zembar said.

"Any time there's a cut, and we try to translate that cut, it's the same question we wrestle with," Zembar said.

Photo: Sen. Orrin Hatch, R-Utah, listens during a Senate Judiciary Committee hearing in September. Hatch is the chairman of the Senate finance committee, which will first consider a Senate tax reform proposal. (Alex Brandon/AP)

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