House Republicans recently released their long-awaited tax reform proposal, which includes the most significant changes to the nation’s tax code in a generation. The proposal would have broad implications for virtually every American, and ACTE is closely monitoring concerns we have about how the proposal would impact CTE teachers, students and funding
According to an Associated Press report on the tax bill:
[T]he proposal’s conflicting provisions and phase-outs of certain benefits suggest that taxes could rise for some middle class earners over time. And for many, the income gains being touted by President Donald Trump are unlikely to materialize… [T]he tax plan’s primary beneficiaries would be wealthier Americans because they would enjoy lower tax rates despite the elimination of some tax breaks…
The nonpartisan Tax Policy Center also provides detailed analysis on the framework of the bill over 10 years:
In 2018, taxes would decline by nearly $1,600 on average… Taxpayer groups in the bottom 95 percent of the income distribution would see modest tax cuts, averaging 1.2 percent of after-tax income or less. The benefit would be largest for taxpayers in the top 1 percent (those making more than $730,000), who would see their after-tax income increase 8.5 percent… In 2027… [a]bout 80 percent of the total benefit would accrue to taxpayers in the top 1 percent… [and] taxes would rise for roughly one-quarter of taxpayers, including nearly 30 percent of those with incomes between about $50,000 and $150,000 and 60 percent of those making between about $150,000 and $300,000. The number of taxpayers with a tax increase rises over time. This is because the plan would replace personal exceptions, which are indexed for inflation, with additional credits for children and non-child dependents that are not indexed for inflation.
Beyond the distributive implications of tax reform, it would have immediate and long-term implications for CTE teachers, students and funding.
Eliminates Deductions for Teacher Expenses
The bill would immediately impact CTE teachers by eliminating the deduction for up to $250 in unreimbursed classroom expenses. A 2013 study showed 99.5 percent of all public school teachers use their own money to purchase classroom supplies.
Eliminates Student Loan Interest Tax Deduction
The bill would eliminate the student loan interest tax deduction. The deduction is currently claimed for any qualified student loan, which includes loans for 2-year degrees and recognized credentials. In 2015, roughly 12 million people used this deduction.
Eliminates Tax Benefits for Employer Education Assistance Programs
The proposal affects educational assistance programs in the form of tax-free tuition reimbursements offered by employers. The traditionally bipartisan program was designed as an incentive for employees to improve their skills in the workforce. The bill would repeal the ability for up to $5,250 of employer educational assistance to be excluded from an employee’s taxable income. This would thus increase the tax burden for working students receiving the employer-offered benefit.
Eliminates the Lifetime Learning Credit
The bill eliminates the Lifetime Learning Credit (LLC) and makes a one-year, modest increase to the American Opportunity Tax Credit (AOTC). On net, this would result in fewer deduction options for postsecondary CTE students. The proposal would affect students differently based on their incomes and how long they are in school. The LLC, which the bill would eliminate, allows a tax bill reduction of 20 percent of qualified education expenses, up to $2,000, for as many years as applicable. By contrast, the AOTC allows a tax bill reduction of up to $2,500 for the first $4,000 of expenses, but is currently limited to four years. The bill would extend the AOTC for a fifth year of eligibility, but limit the benefit in the fifth year to $1,250. Essentially, the changes in the bill would be most likely to harm students whose educational journey over their lifetime takes more than five years – including those who later go back to school and who have already used the AOTC.
Expands 529 College Savings Accounts to Cover Apprenticeship Expenses
On a positive note, the bill would expand the qualified uses of 529 college savings accounts to expenses related to enrollment or attendance in a registered apprenticeship programs. Those expenses could include books, supplies, and any required equipment.
Eliminates State and Local Tax Deductions that Help Fund Public Schools
Perhaps most significantly to the education community, the bill eliminates state and local income and sales tax deductions. It also caps the deduction for local property taxes at $10,000 annually. By scrapping and limiting these deductions, the bill would immediately put the squeeze on states and localities to reduce (or freeze) their tax assessments to offset the added burden on taxpayers. That pressure, contends groups like the School Superintendents Association and the American Federation of Teachers, would result in a reduction of state and local education funding, including for CTE. In fact, according to Education Reform Now, the elimination of the state and local income and sales tax deduction in the House Republican bill would strip roughly $250 billion from public education over the next 10 years. Assuming 50 million k-12 public school students, that’s about $500 per student, per year, for 10 years.
Impact on Federal Revenue and Education Funding
Most of the items outlined above increase the federal government’s revenue by eliminating tax deductions that would otherwise reduce Americans’ tax bills. However, the bill contains provisions that would dramatically reduce federal revenue over time, including by consolidating/reducing individual income tax rates and increasing the standard deduction. Another cost in the bill is the phasing out of the estate tax, completely eliminating it in six years. Eliminating the estate tax, which is levied on inheritances greater than $5.49 million, would annually cost the government in revenue more than 20 times the annual expenditure on Perkins Basic State Grants. The bill would also slash the corporate tax rate from 35 percent to 20 percent and more than double the threshold for the highest income tax bracket to $1 million for couples, among other things.
Overall, when taking into consideration the cost of the tax cuts and the federal revenue increases from elimination of various deductions, the bill’s net predicted cost is $1.51 trillion over 10 years. To account for those cuts, the bill not only eliminates existing tax benefits, but could compel funding cuts to other non-tax related expenditures. Many of these cuts would come from non-defense discretionary spending, including education. Federal aid to local schools (like Perkins Basic State Grants), Pell grants, workforce development programs, and more could all be on the chopping block in the future to pay for these tax cuts.
Tax reform has wide-ranging implications for both individuals and the education community, and it’s important to know that what Congress and the president enact over the next few weeks could have major CTE implications for years to come. You can learn more details about the entire proposal here.
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