In the weeks leading up to Christmas, the battle over tax reform provided unprecedented political theater in Washington. There were so many drama-filled, gasp-worthy battles over the House and Senate bills that Twitter, let alone more traditional news outlets, could barely keep politica
l junkies up-to-date. Since tax reform will likely be a done deal by the time this column is published, I will do my best to provide the Washington view of the battleground.
The war of words erupted in November, when House Republicans — and then, later in the month, their colleagues in the Senate — introduced their plans to reform the nation’s tax code for the first time in 27 years. Their bills went after a whole host of things our nation claims to care about, but the clearest target was education, both at the K-12 and postsecondary levels.
Threats to K-12 funding
It is no secret that Secretary of Education Betsy DeVos and President Donald Trump strongly support school choice, and DeVos, in particular, has looked for opportunities to support school choice programs. The House bill found a way to push this agenda by allowing families to use their state 529 college savings plans to pay for K-12 education expenses, such as private school tuition. This backdoor plan to allow more families to pursue private school options would be the first of its kind at the federal level.
DeVos suggests that this move will create more educational options for low-income families, but that’s not what most experts predict. Allowing families to use their 529 savings plan to pursue private school options would almost assuredly favor wealthier families who have the resources to fund a 529 plan and can also afford to cover the additional costs that go along with private education. Low-income families are much less likely to have a 529 savings plan at all, let alone the additional money needed to pay for extra private school fees. However, those realities don’t seem to trouble the secretary, whom I suspect was delighted to learn that the Republican plan also included a tax break for billionaires who own private jets.
DeVos suggests that this will create more educational options for low-income families, but that’s not what most experts predict.
(Forgive me if I add a personal note here, but there should be a special place for people who support a plan that gives billionaires a tax break for their private jets and takes away a meager $250 tax break for teachers who spend their own money to buy classroom supplies.)
Both the House and the Senate bills went after a long-standing tax deduction known to policy wonks as SALT (state and local taxes). Current law allows taxpayers to deduct state and local taxes from their federal income tax. About 44 million Americans take advantage of this deduction, which helps state and local governments levy higher taxes to help fund local schools (the idea being that taxpayers don’t squawk as much about paying higher taxes if they know they can deduct those costs from their own income tax). Since state and local governments fund 90% of school budgets, any changes to this system will likely affect local funding for public schools. The Senate bill eliminated the entire deduction, while the House bill allowed taxpayers to deduct up to $10,000 in local property taxes.
The debate over SALT is really part of a much larger and necessary conversation regarding equitable funding of public education. The Center on Budget and Policy Priorities recently found that when adjusted for inflation, per-student funding on K-12 education is actually lower today in 29 states than it was during the 2007-08 recession; in some states, like Arizona and Florida, funding is down by more than 20%. Unfortunately, solving this problem requires a level of civility and discourse that is missing from today’s toxic policy environment.
An assault on higher education
The fight to protect higher education access and affordability was in some ways the biggest part of the showdown between taxes and education. The House bill, in particular, took an aggressive stance toward graduate students, employers who provide tuition assistance to employees, and wealthy private colleges.
Under current law, graduate students do not have to pay taxes on the amount of tuition that is waived by their universities when they participate in research projects or engage in other value-add activities. However, the House bill would tax the dollar amount of that tuition waiver, resulting in a huge increase in the annual taxes that graduate students have to pay. Critics say this move is a terrible way to incentivize anyone, let alone low-income students, to pursue a graduate school education. Even with tuition waivers, graduate school is never cheap. Further, the House bill would also do away with the $2,500 tax deduction on student loan interest. Taken together, these aspects of the House bill represent a full-on assault against graduate students. And just to make sure no student escapes unharmed, the House bill would also eliminate the employer-provided tuition assistance program, which allows employees to get up to a $5,250 tax break on any tuition assistance provided by their employers.
One would think that at a time when boosting the competitiveness of the workforce is (allegedly) a top priority for the country, it would be a no-brainer to incentivize more students to pursue higher education. Alas, that doesn’t seem to have occurred to House Republicans. Thankfully, the Senate version of the tax bill did not include these shortsighted provisions. and in mid-December, as I write these words, it appears that the House, under heavy pressure from higher education advocates, has backed off the idea to tax graduate students’ tuition waivers.
However, both the House and Senate bills put wealthy colleges on their holiday hit list: The House plan would tax private colleges with endowments valued at or above $250,000 per full-time student, while the Senate bill set the mark at $500,000. The Washington Post estimated that 60 to 70 schools would be affected by the House bill and 25 to 30 schools by the Senate bill. College presidents and others in higher education reacted with outrage, arguing that this would further increase the cost of education. But as numerous pundits have pointed out, many Americans have little sympathy for highbrow colleges and universities.
Finally, just as all the drama around postsecondary education was coming to a crescendo on the Hill, the House Education and Workforce Committee chairwoman Virginia Foxx (R-NC) introduced the Promoting Real Opportunity, Success, and Prosperity through Education Reform Act (cleverly spelling out PROSPER), meant to overhaul the existing Higher Education Act. Predictably, the first line of the PROSPER fact sheet reads: “The promise of postsecondary education is broken.” (For the record, if I got a dime for all the times politicians used the word “broken” to describe any and all aspects of education, I would be celebrating the Republican tax plan along with the billionaires).
Ostensibly, this bill would fix what is broken in higher education by promoting innovation, access, and completion; simplifying student aid, and empowering students and families. However, initial reactions to the bill were definitely mixed. Democrats cried foul over the bill’s elimination of Obama-era safeguards to protect students from the predatory practices of some for-profit and online schools while Republicans applauded the provisions that would limit the federal government’s authority over an industry that is growing by leaps and bounds. Unfortunately, the reality of our times will likely make the debate over the Higher Education Act just as heated and ugly as the fight for tax reform. If the legislative process is meant to articulate our values and help orient our nation toward the future, then some of our federal leaders have placed us at a dangerous crossroads when it comes to education.
Citation: Ferguson, M. (2018). New tax plan provides little cheer for education. Phi Delta Kappan 99 (5), 74-75.