ISSUE #3: Tax Reform

Congress explores cutting safety net programs to pay for tax cuts. Meanwhile, decreases in deductions threaten local school districts.

President Trump signed a comprehensive tax reform bill into law on December 22, 2017. The federal tax overhaul is estimated to increase the federal deficit by $1.5 trillion and included significant cuts to public education and higher education. The tax reform plan drops the corporate tax rate down from 35% to 21%, repeals the corporate alternative minimum tax, nearly doubles the standard deduction for individuals, and restructures the way pass-through businesses are taxed. Republicans in Congress already have indicated a willingness to look at reforms in programs such as Medicare, Medicaid, and Social Security to help pay for the tax reductions.

The new tax law hurts local school districts that primarily rely on the support of their local tax base for school funding. By increasing the standard deduction for individuals, the tax law significantly decreases the number of taxpayers who can take advantage of itemized deductions, including the deduction of state and local taxes. This means that local school officials may find it more difficult to garner support from taxpayers who will no longer see a tax benefit from deducting the local taxes that support education funding. The National Education Association estimates that the elimination of this important tax deduction will lead to a loss of approximately $370 billion in state and local tax revenue during the next ten years, and could result in the loss of over 350,000 education jobs.