The new tax bill passed by Senate Republicans does away with crucial support for public schools while adding a provision beneficial to their private counterparts. That move would help wealthy parents pay for private schools, including religious schools, while hurting lower-income families. A similar provision is in the House version of the tax bill.
In the early hours of Saturday morning, GOP lawmakers passed the biggest tax overhaul in several decades through a 51 to 49 vote. One lone Republican, Sen. Bob Corker of Tennessee, voted against the legislation, citing deficit concerns. The bill, which includes a number of dramatic provisions and cuts, will have sweeping implications for many people across the United States.
Under current law, parents can open 529 plans to help pay for future college costs. Those accounts, which differ by state, are tax-advantaged and grow as long as the money is spent exclusively on higher education. A last-minute provision added to the Senate tax bill allows for 529 plans to be used for K-12 private schools. (Lawmakers initially included but later removed a controversial provision allowing parents to open 529 accounts for fetuses.)
In addition to benefitting wealthier families, the new 529 expansion is popular with proponents of “school choice” — a movement that favors religious education. Sen. Ted Cruz (R-TX), a longtime supporter of school choice, filed the amendment expanding 529 plans. Debate over Cruz’s amendment helped stretch the tax bill vote into the early-morning hours but the addition still won out in the end.
Ron Lieber, a financial columnist for the New York Times, tweeted that the Cruz amendment’s implications could have much broader repercussions than similar language in the House bill.
“Last night, Ted Cruz (w the help of a tiebreaking vote from VP Pence) got the 529s-for-private-schools provision into the Senate tax bill. As I reported last month, this could be worth $30,000 in net new tax savings per child to wealthy families,” Lieber wrote. “The Cruz amendment goes even further than the House 529s-for-private-schools thing did. If the House comes around, you’ll be able to use 529s for tutoring.”
The Cruz amendment goes even further than the House 529s-for-private-schools thing did. If the House comes around, you'll be able to use 529s for tutoring. Good morning @ThePrincetonRev! Feeling good @IvyWise?! 2/2 https://t.co/huT2AIsPmH
— (((Ron Lieber))) (@ronlieber) December 2, 2017
The state and local tax deduction (or, SALT) allows taxpayers to deduct those taxes when determining their federal income taxes. SALT’s biggest beneficiaries are actually wealthy suburban voters in populous states like New York and California, many of whom tend to vote Republican. But the Senate bill initially called for a complete repeal of SALT in order to lower tax rates elsewhere.
Outcry from some Republicans led to a slight change — itemizers may still receive a deduction for property taxes up to $10,000. But the rest of the SALT repeal stands, which is bad news for public schools.
Under SALT, income that paid for public schools went untaxed at the federal level. Current law allows states that raise taxes to better fund public schools to receive a deduction through SALT. The Senate bill ends that ability. As states struggle to lessen the impact of the tax bill on citizens, there will be an outsized amount of pressure on the taxes that typically help public schools.
For families able to afford private school, the combination of SALT’s demise and the tax bill’s new private school provision is likely to make the decision to pay for private education far more appealing. That’s a big win for school choice proponents like Education Secretary Betsy DeVos, who expressed support for the original 529 plan expansion in the House tax bill.
Public schools in areas with strong upper middle class populations currently fare well because they can afford teachers with higher salaries and offer an array of extracurricular options. Families in those areas are also invested in public schools, to say nothing of incentivized by SALT. But without the deduction, that incentive goes away. Wealthier families will be more inclined to opt for private school instead — especially with the expansion of 529 plans.
Experts have speculated that the elimination of SALT could ultimately cost public schools upwards of $17 billion. That loss will almost inevitably degrade the quality of public schools, something that will hurt families with no other option. Around 50.7 million U.S. students attend public schools — approximately 90 percent of students in the United States.