Education advocates concerned about tax reform

President Donald Trump issued his grand plan for tax reform last month, and after some considerable review, advocates for education don’t like it. No, it doesn’t create tax incentives for charter or religious schools or for parents to spend money on exclusive or not-so-exclusive private schools; rather, Mr Trump’s plan looks to eliminate the state and local tax (SALT) deduction. That right there has many experts, even some Republicans, crying foul.

US Education Secretary Betsy DeVos may have to initiate voucher reform on her own, and she may very well do that. Tax reform, though, doesn’t look like it will include any big-ticket education reforms. So why should educators, child advocates, or school districts care about it beyond the idea that we all pay taxes and will be affected by whatever reforms come to the federal tax laws?

To understand this issue, we first have to dig into school funding in America. Schools get most of their money from local taxes, typically paid as income tax or by property owners based on the assessed valuation of their property, which includes mainly real estate and vehicles. Businesses also pay sales tax, and while this is split between local governments and state governments in different locations, part of it inevitably ends up in the schools.

In order to increase taxes at the local level, most regions of the country require voters to approve the additional spending at the ballot box. For example, if a school district in Illinois wants to issue bonds to build a new addition to a school building, the question has to be put to voters in a referendum. The exact mechanism of how this works differs from state to state, but it’s mostly up to voters to say yes or no to local tax increases.

And since local tax increases send money to schools directly, more than any other source, the votes for tax referendums are contentious. Look, nobody wants to pay higher taxes, so it often falls on the school district to explain to voters why it’s important to increase the mill rate, to show how the additional tax levy will benefit schools and students.

One mitigating factor for voters has always been the fact that federal law allows them to deduct the taxes they pay locally from their federal tax. Since taxpayers can deduct any additional local tax they pay from their federal taxes, at least partially, they are theoretically a little more likely to vote yes on a local tax increase since the SALT deduction will offset a portion of that local increase. And since much of that local increase is probably destined for schools, making the tax increase more palatable has always played to the advantage of school districts and other local taxing authorities.

Now, this proposal might not get very far, since even Republicans, especially those in high-income states like California and New York, don’t like the possibility of eliminating the state and local tax deduction. “Without the SALT deduction, taxpayers in all 50 states and in the District of Columbia would be doubly taxed—they would pay federal income taxes on the money they pay to their state and local governments,” the Republicans wrote in a letter back in June. “Such a policy is eminently unfair, as the federal tax code has recognized for the past 103 years.”

About the Author

Paul Katula

Paul Katula is the executive editor of the Voxitatis Research Foundation, which publishes this blog. For more information, see the About page.

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