Earlier this month, we previewed the tax reform bill introduced by House Republicans and outlined how it could impact the CTE community. Since then, the House passed the bill with no Democratic support and with 13 Republicans opposing it.
In the Senate, the Finance Committee recently passed its tax reform bill on a strictly party-line vote. While the two bills are similar, there are some significant differences that could impact CTE students, educators and funding.
Deduction for Educators’ Classroom Expenses
Originally the Senate bill eliminated the $250 deduction for educators’ classroom expenses, as was done in the House bill. However, a modified Senate proposal that the committee ultimately passed actually doubles the deduction from $250 to $500.
Elimination of Deductions for State and Local Taxes (SALT)
The House bill eliminates SALT deductions for income and sales taxes, and caps the deduction for property taxes at $10,000. Conversely, the Senate bill completely eliminates the SALT deduction in all forms. As we articulated when previewing the House bill, eliminating SALT deductions would put the squeeze on states and localities to reduce taxes, which could harm education funding. In fact, Education Reform Now predicts the changes to SALT in the House bill would slash education funding by up to $300 billion over the next ten years. The National Education Association predicts the House bill would put 250,000 education jobs at risk. Both estimates are based on the House bill, which maintains part of the SALT property deduction, so the complete elimination of the SALT deduction in the Senate bill would have an even more harmful effect.
Impact on Low-Income and Middle-Class Families
According to the nonpartisan Center on Budget and Policy Priorities (CBPP), the Senate bill, much like the House-passed bill, would disproportionately benefit upper-income earners. CBPP predicts that by 2027, every income group earning less than $75,000 per year would experience a tax increase on average. Those earning $75,000 - $100,000 per year would see no change, and those earning in excess of $100,000 per year would see a tax cut. (These figures do not include benefits conferred to wealthy heirs as a result of changes in the estate tax.) According to the Bureau of Labor Statistics, the median annual wage in 2015 for CTE middle school and secondary school teachers was $55,190 and $56,130, respectively. Therefore, the proposal would likely impact CTE educators negatively.
Other Distinctions from the House Bill
On the positive side, unlike the House bill, the Senate bill does not eliminate the student loan interest deduction, the Lifetime Learning Credit or tax benefits for employer-paid tuition. However, the Senate bill repeals the individual mandate in the Affordable Care Act, which the nonpartisan Congressional Budget Office (CBO) projects would result in four million fewer people with health insurance in 2019, and 13 million fewer by 2025.
Impact on Federal Education Funding
The CBO predicts the Senate bill would cost $1.4 billion over 10 years as a result of corporate tax cuts and reductions in individual tax rates for upper-income earners. As a result of the reduction in federal revenue, Congress may be forced to cut non-defense discretionary spending priorities, including education. This could include Perkins Basic State Grants, which have already declined in recent years; Pell grants; workforce development programs; and other CTE-related federal funding provisions.
As Axios reports, based on a compilation of polls, only 28 percent of Americans support the Republican tax reform proposals. ACTE is concerned about provisions in both the Senate and House bills, and recently partnered with Advance CTE to send letters outlining our concerns to the congressional committees overseeing tax reform.
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