House Tax Reform Bill Likely to Impact Public Schools

House Republicans have finally released details on their highly-anticipated tax reform proposal this week.  While initial reports indicated there would only be tangential impact on public schools, a closer review of the language shows that schools may see greater effects than originally anticipated.  House leaders plan to bring the package to a final vote before breaking for the Thanksgiving holiday.


One item in the tax package that had been discussed, but many thought would not make it into the final bill, includes funding for school choice.  Specifically, the new proposal would allow families to use up to $10,000 in savings from 529 college savings plans for K-12 expenses, including private school tuition.  The 529 college savings plan currently encourages parents to save for their child’s college education by allowing them to earn interest and withdraw money tax-free for higher education.  This new proposal would be an unprecedented victory for school choice proponents, if Republicans can get the bill through to final passage.


This school choice provision is just a small part of a larger reform plan.  Overall, the bill released Thursday would slash corporate and some individual tax rates, offsetting the cost by eliminating certain deductions. One such deduction on the chopping block includes a $250 deduction that teachers can use to cover classroom expenses, such as books, art supplies, and rewards for students.  The reasoning behind this elimination is that the overall changes to individual tax rates will make up for the loss of this deduction.  As tax experts and other groups begin to review and score this new proposal, it should provide additional information regarding the positive or negative outcome this supposed balance will yield.


The bill would also eliminate the deduction for State and local income and sales taxes.  As a compromise, the proposal keeps the deduction for local property taxes in the federal tax code, up to $10,000, according to a summary of the legislation posted on the House Ways and Means Committee website.  The State and local income tax deduction, however, is eliminated in the legislation.  Despite this compromise, many education advocates say that without the federal deduction for those taxes, States would feel significant pressure to cut their own taxes, which would in turn strip out a lot of revenue for public schools.  A report by the Center on Education Policy from 2011 estimated that the loss of State and local tax deduction overall would deprive public schools of $17 billion, based on 2009 data.  However, that number, as a representation of potential lost revenue for schools, could be a lot smaller if the local property tax deduction stays on the books.   Regardless, that $17 billion figure is still a relatively small percentage of overall funding for K-12 in the U.S, which stood at $634 billion in the 2013-14 school year.


The tax proposal would also increase the tax credit for those with dependent children from $1,000 to $1,600.  At the same time, the measure would eliminate deductions for higher education loan interest. Supporters in Congress argue that all of the deduction eliminations are balanced by the shift in personal income tax brackets, though not all individuals are guaranteed to end with a positive gain.  Even if the House is able to get the bill passed by Thanksgiving, there is still no guarantee that the Senate will approve the package without amendments.  Although this tax proposal is considered a budget reconciliation bill, which is not subject to a filibuster in the Senate, a number of Republican Senators have demonstrated their willingness to break party ranks in recent months.  Next week’s markup in the House Ways and Means Committee may set the tone for the nature of the debate the bill will face over the coming months.


Resources:Moriah Balingit, “The GOP Tax Reform Bill Helps Betsy DeVos’s School Choice Agenda, But Worries Public Education Advocates,” Washington Post, November 2, 2017.Alyson Klein and Andrew Ujifusa, “GOP Tax Bill Would Boost School Choice, May Squeeze K-12 Revenue,” Education Week: Politics K-12, November 2, 2017.


Author: SAS

About the Author

Steven Spillan is an associate with the Washington, DC law firm of Brustein & Manasevit, PLLC. Established in 1980, the Firm is nationally recognized for its federal education regulatory and legislative practice, providing legal advice regarding compliance with all major federal education programs as well as the federal grants management requirements, including the Education Department General Administrative Regulations (EDGAR). In addition, they work with agencies on federal spending flexibility, allowability, policies and procedures, audit defense and resolution and legislative updates. The Firm provides government relations services for the National Title I Association.