While the eyes of public education advocates remain transfixed on Secretary Betsy DeVos and President Trump’s private school voucher and “skinny budget” aspirations, they are missing the far graver threat to public schools—tax reform.
Most mainstream media publications report that the federal role in financing local public schools is small, targeted, and progressive. They stipulate that the federal government is responsible for less than 10 percent of all education spending, supplied mainly through the Title I program for low-income children and IDEA special education program. They report that, while federal funding for education could be more targeted, it’s nonetheless relatively progressive in that more of it goes to schools and school districts with a larger number of children from low-income families.
But these reports are wrong, and you can bet Republican budget experts and political operatives know it. They know that federal financial support for public education is significant, general in nature, and disproportionately favors “blue” states. Under dark cover, they’re going to go after sizable amounts of federal support for public schools with a vengeance, using filibuster-proof vehicles of budget reconciliation and tax reform.
Budget experts think about more than direct spending when evaluating government finance, including, importantly, the tax code’s role in underwriting public services. Tax subsidies, otherwise known as “tax expenditures,” are the functional equivalent of direct federal appropriations. The government can provide an individual a direct grant to buy education services, for example, or it can provide an indirect tax deduction or tax credit for education services bought. The effect is the same.
Consider the existing federal tax deduction for state and local property taxes, which overwhelmingly fund local schools. An individual in the 28 percent marginal income tax bracket that itemizes and deducts $5,000 in property taxes reduces his or her federal tax bill by $1,400. Of $5,000 raised locally for education, the individual pays $3,600 and the federal government pays $1,400.
Thus the federal deduction for state and local taxes makes using those taxes to fund education and other public goods or services more attractive, because it makes state and local taxes a cheaper source of revenue for regular people than they otherwise would be. In other words, tax expenditures can be good for progressive public policy and, at least at times, they should be defended.
Massive federal financial support is provided to K-12 public education through the tax code. While over 45 percent of direct public education funding comes from state government, and slightly less comes from local government via local property taxes, the federal government subsidizes almost all K-12 public education funding in the form of state and local income, sales, and property tax deductions.
The federal deduction for state and local property taxes alone totaled over two times the size of direct grant aid provided through the Title I and IDEA programs for disadvantaged students. In 2016, the federal subsidy for all state and local taxes was valued at $97 billion and helped finance over four times that much in state and local public elementary and secondary education spending for all students.
The best hope for protecting public education from the worst of the Republican budget and tax agenda lies in communicating loudly and widely that deep reduction or elimination of the state and local tax deduction would decimate public education. The Trump-DeVos-Congressional Republican budget is really about padding Wall Street, buying weapons systems, and most significantly, burning down what government does to assist regular people, including working to provide kids from all walks of life, in all geographic areas, a public education.
Over 45 million families residing in nearly every school district benefit from the federal tax subsidy for state and local education spending, albeit in a regressive fashion thanks to the marginal rate structure and varying levels of commitment to education funding. For example, who taxes themselves the most and therefore gets the biggest subsidies? Those in blue states like New York, Massachusetts, and California.
But here’s the thing: Public schools everywhere—in red and blue states, in rural, suburban, and urban areas—will lose significant financial support if the Republican tax reform plan significantly lessens or eliminates the state and local tax deduction. New York Governor Andrew Cuomo, Senator Elizabeth Warren, Governor Jerry Brown, and education advocates everywhere all need to make that case loudly, repeatedly, and, hopefully, also successfully.
Republicans don’t like to increase spending, but they’re generally fine with cutting taxes. True, they tend to cut them and fund government services in a regressive manner, but it doesn’t have to be that way. Where tax expenditures operate in support of government spending, liberals would be wise to embrace them in support of progressive goals.
The goal of tax reform should not be simplification at the expense of public education as much as increased fairness and economic growth with the help of strong, well-financed public education.
For what an affirmative public K-12 education tax agenda might look like, read more here.