Eliminating SALT Deduction Is A Tax Increase And Will Devastate Education Funding
H.R. 1 would eliminate most of the state and local tax deduction (SALT)–taking money out of the pockets of as many 44 million middle-class families across the nation. While the bill hammers middle-class families on this, it oddly preserves the ability of businesses to deduct state and local taxes–yet another example of how the bill takes from working families to provide tax giveaways to those who are wealthier.
Eliminating any part of the state and local tax deduction could lead to a tax increase on middle class families and have a negative, ripple effect on the ability of states and local communities to fund public services, like education. That could translate into cuts to public schools, lost jobs to educators, and overcrowded classrooms that deprive students of one-on-one attention.
NEA conducted a detailed analysis of the plan to eliminate most of SALT. In total, education funding could take a $250 billion cut over the next 10 years and put up to 250,000 education jobs at risk. It is no secret what is likely to follow if Congress eliminates SALT. If there is any doubt,one need only to listen to what far-right groups like ALEC are saying right now. Their letter about the SALT deduction lays out their plan–to lobby for lower taxes at the state and local level. This means even fewer available funds for students and public education.
Turning Popular 529 College Savings Plan Into A Voucher-like Scheme For The Wealthy
The tax plan distorts a popular education tax program for middle-class families by creating a voucher scheme with no income limits that is aimed at benefiting the wealthy to set aside up to $10,000 annually in a tax-free account for private school expenses. Both the Heritage Foundation and Education Secretary Betsy DeVos agree, noting to the Washington Post that the backdoor voucher plan is “. . . a good step forward . . .” in allowing public dollars to follow children to private school. Make no mistake. This poorly veiled voucher program will only benefit the wealthiest families who can already afford private school tuition at the expense of our students, communities, and taxpayers. In the end, no matter what form or name a voucher program takes, the impact is the same. This risky voucher program will hurt students and neighborhood schools–where 90 percent of children attend.
Elimination Of The Modest Educator Tax Deduction
While offering huge giveaways for wealthy individuals and corporations, the plan inexplicably eliminates the popular educator tax deduction that allows educators to deduct eligible unreimbursed out-of-pocket classroom spending–books, paper, pencils, and art supplies purchased to supplement meager school budgets–up to $250 annually. The popular plan made “permanent” by Congress just two years ago, was claimed on 3.7 million tax returns in 2015. Almost every educator pays out of pocket for school supplies. The most recent study by the National School Supplies and Equipment Association (NSSEA) estimated that public school educators spent $1.6 billion of their own money during the 2012-2013 school year on classroom supplies. An estimated 99 percent of public school teachers spent some amount of money out of pocket for their classrooms, with typical amounts ranging from $500-$1,000.
Making College Even More Costly for Families
The plan also eliminates the student loan interest deduction. This is bad news for students and families. Under current rules, borrowers paying off education loans can annually deduct up to $2,500 of interest paid on student loans. H.R. 1 essentially raises the long-term cost of attending college by eliminating the deductions for interest paid on student loans. According to the IRS, over 12 million individuals claimed this deduction in 2015. Further, the bill eliminates a provision that allows universities to waive tuition for graduate students. Graduate students would be taxed on the value of that tuition as if it were income, making it almost impossible for many students to afford graduate degrees. In a time of rising college costs and skyrocketing student loan debt, it is unthinkable to take away provisions that assists students and families struggling to pay for college.
Eliminating Successful School Construction Bonds Program
The Qualified Zone Academy Bond (QZAB) Program has proven to be an efficient and cost-effective way to help disadvantaged communities address pressing renovation and repair needs in schools. Investors receive a federal tax credit equal to the amount of interest payable on the bonds, thereby relieving local taxpayers and municipalities of the interest burden. A school that is awarded a QZAB may use the funds to renovate and repair buildings, invest in equipment, and update technology which are all vital to student well- being and success. Eliminating this program will only ensure that more and more students will go to school in yesterday’s buildings with out-of-date technology and often unsafe, crumbling infrastructures.
Putting State and Local Public Pensions Funding at Risk
Section 5001 of H.R. 1 could subject certain investment of state and local government pension plans to the unrelated business income tax (UBIT). Investment earnings pay for approximately two-thirds of state and local government pension benefits, which are taxed when distributed to participants. In addition to the revenue lost from the tax itself, subjecting these pension plans to UBIT could pose significant and complex compliance costs that could dramatically affect pension funds. Further, the UBIT will result in a drag on these critically important investment returns, sets a dangerous precedent for taxation of state entities, and will ultimately increase costs to taxpayers.
Rewriting The Tax Code Should Not be Rushed
In 1986, Congress undertook a yearlong, bipartisan effort to deliberately and carefully rewrite the tax code. Measured consideration should again be taken in understanding the near-term and long-term impacts a tax code rewrite will have on families, communities, and public services. Instead, Congressional leadership is rushing the process and putting forward a bill that further tilts the scale in favor of the wealthy and corporations, and paid for by working families.
For all of the reasons outlined above, we urge you to Vote No on H.R. 1.
Marc Egan, Director of Government Relations,
National Education Association.
American Council On Education, Washington, DC, November 6, 2017.
Re Higher Education Provisions in H.R. 1, the Tax Cuts and Jobs Act.
Hon. Kevin Brady, Chairman, Ways and Means Committee, Washington, DC.
Hon. Richard Neal, Ranking Member, Ways and Means Committee,Washington, DC.
Dear Chairman Brady and Ranking Member Neal:
On behalf of the American Council on Education and the undersigned higher education associations, we write to express grave concerns with H.R. 1, the Tax Cuts and Jobs Act.
This legislation, taken in its entirety, would discourage participation in postsecondary education, make college more expensive for those who do enroll, and undermine the financial stability of public and private, two-year and four- year colleges and universities. According to the Committee on Ways and Means summary, the bill’s provisions would increase the cost to students attending college by more than $65 billion between 2018 and 2027. This is not in America’s national interest.
It is possible to offer tax relief to hard-working middle- class and lower-income Americans in a way that does not increase college costs and does not make a quality higher education less accessible. We are eager to work with Congress to enact such legislation, but this bill heads in the wrong direction.
Our main objections to the bill are listed below, in the order in which they appear in the legislation. The order is not meant to reflect prioritization:
Sec. 1002: Changes to the standardized deduction, which will reduce charitable contributions to our institutions;
Sec. 1002: Repeal of Lifetime Learning Credit, while not substantially increasing the American Opportunity Tax Credit
Sec. 1204: Repeal of the Student Loan Interest Deduction
Sec. 117(d): Repeal of the qualified tuition reduction;
Sec. 127: Repeal of educational assistance program;
Sec. 1303: Changes to the state and local tax (SALT) deduction, which will reduce state budgets and, in turn, funding for public higher education;
Sec. 3601: Termination of private activity bonds; and,
Sec. 5103: Creation of a new excise tax on endowments at private colleges and universities. Colleges and universities also have a number of concerns about other provisions that would negatively impact students by lessening charitable giving, limiting university-industry partnerships, and compromising educational quality.
Title I–Tax Reform for Individuals subtitle a–simplification and reform of rates, standard deduction, and exemptions
Sec. 1002. Enhancement of the standard deduction Colleges and universities are concerned that doubling the standard deduction for individuals and couples will reduce the number of taxpayers who itemize, significantly reducing the value of the charitable deduction and leading to a drop in donations to all nonprofits, including colleges and universities. For private nonprofit and public colleges and universities, the charitable deduction is vital for generating private support to higher education institutions to help achieve their educational missions of teaching, research, and public service. While the bill preserves a modest charitable giving incentive, its value would be significantly curtailed and charitable giving would decline to all nonprofits, which provide essential services to all Americans. We are disappointed that the bill did not include a proposal that would expand the charitable deduction to non- itemizers, like the universal charitable deduction.
Subtitle C–simplification and reform of education incentives
Sec. 1201. The American Opportunity Tax Credit (AOTC) H.R. 1 would repeal the Lifetime Learning Credit, while only expanding AOTC to include a fifth year of reduced support. This would be a large step backwards, not an improvement, for many students and their families who benefit under current law. We appreciate that the bill maintains the expanded eligible expenses of the AOTC, which includes required course materials, as well as the current income thresholds. But we are extremely concerned that the “enhanced” AOTC, as written, would preclude graduate students, part-time students, lifelong learners (particularly those seeking retraining), and any student taking longer than five years to finish their education from accessing the AOTC, adversely impacting their financial ability to pursue a degree or lifelong learning. Indeed, under the changes proposed in the bill, many non-traditional students–the fastest growing segment of students in higher education– would lose significant tax benefits they currently rely upon to help finance their higher education.
Sec. 1204. Repeal of other provisions relating to education The legislation as written would repeal the current Student Loan Interest Deduction (SLID). Under current law, any individual with income up to $80,000 (or $160,000 on a joint return) repaying student loans can currently deduct up to $2,500 in student loan interest paid. In 2014, 12 million taxpayers benefited from SLID. Eliminating this provision would mean that, over the next decade, the cost of student loans for borrowers would increase by roughly $13 billion. H.R. 1 would also repeal two important provisions meant to exclude tuition waivers and tuition exemptions from income for campus employees and graduate students.
Section 117(d) permits educational institutions to provide their employees, spouses, or dependents with tuition reductions that are excluded from taxable income, helping them afford a college education and providing an important benefit to many middle- and lower-income college employees.
Section 117(d)(5) is also an important provision that reduces the cost of graduate education and mitigates the tax liability of graduate students teaching and researching as part of their academic programs. Roughly 145,000 graduate students received a tuition reduction in 2011-2012. Repeal of this provision would result in thousands of graduate students being subjected to a major tax increase. The provision is also critical to the research endeavor at major universities, particularly in the crucial science, technology, engineering and math (STEM) fields. According to data from the Department of Education, 57 percent of tuition reductions went to graduate students in STEM programs.
Section 127 allows employers to offer employees up to $5,250 annually in tuition assistance, which is excluded from taxable income. This provision has been an important means of building and adding to the competencies of the workforce and is a critical tool to help our nation accelerate its economic growth.
For all of these reasons, we strongly believe that Sections 117(d) and 127 should be preserved.
Subtitle d–simplification and reform of deductions
Sec. 1303. Repeal of deduction for certain taxes not paid or accrued in a trade or business Changes to the state and local tax (SALT) deduction will have a significant negative effect on state budgets, forcing state governments to make very difficult and harmful funding decisions. The SALT deduction helps state and local governments fund public services that provide widely shared benefits. Limiting the deduction will almost certainly make it harder for states and localities–many of which already face serious budget strains–to raise sufficient revenues in the coming years to fund higher education and other priorities. There has been a long-term decline in state support for higher education and cuts to SALT will exacerbate this problem. Cuts in state support for public higher education can lead to increased tuition and potentially cuts to state student financial aid programs, raising the cost of attending college for students and their families. History has shown that when states need to make cuts, support for higher education is often a primary target.
Title III–Business Tax Reform
subtitle g–bond reforms
Sec. 3601. Termination of private activity bonds H.R. 1 would eliminate private activity bonds, which are used by private nonprofit colleges and universities to finance capital projects. This repeal would essentially prevent institutions from using lower-cost tax-exempt bond financing. Higher borrowing costs can result in diminished investments in infrastructure, fewer jobs, reduced services, and increased service charges and other fees to students.
Title V–Exempt Organizations
subtitle b–excise taxes
Sec. 5103. Excise tax based on investment income of private
colleges and universities H.R. 1 fundamentally changes the way nonprofits are treated by creating a new and unprecedented tax on endowments of some private colleges and universities. This provision undermines the very nature of the tax-exempt status of private colleges and universities. While the new excise tax is currently focused on private institutions, we strongly oppose this new excise tax and the precedent it sets for all of higher education.
Investment income from endowments is used every day to support nearly every aspect of an institution’s operations, including all the components vital to its mission and the delivery of a high-quality, affordable education, from financial aid to research and student retention and success programs.
An endowment is not a single entity that can be used for any purpose. Rather, it is a permanent investment fund consisting of often thousands of separate accounts designed for the needs of the present and the future. Under H.R. 1 potentially large amounts of endowment dollars would be redirected to the federal government, taking them away from providing scholarships to our students and supporting research and education. It also would effectively be a tax on donors’ contributions and shift money from the dedicated purpose for the donation. Roughly 160 institutions will likely be affected by this provision, and we strongly object to it.
For all of these reasons, we cannot support H.R. 1 and strongly oppose the proposed changes outlined above.
Ted Mitchell, President.
On behalf of:
ACPA–College Student Educators International, American
Association of Colleges for Teacher Education, American
Association of Colleges of Osteopathic Medicine, American
Association of Collegiate Registrars and Admissions Officers
(AACRAO), American Association of Community Colleges,
American Association of State Colleges and Universities,
American Association of University Professors, American
Council on Education, American Dental Education Association,
American Psychological Association.
APPA, “Leadership in Educational Facilities”, Association
of American Colleges and Universities, Association of
American Medical Colleges, Association of American
Universities, Association of Catholic Colleges and
Universities, Association of Community College Trustees,
Association of Governing Boards of Universities and Colleges,
Association of Jesuit Colleges and Universities, Association
of Public and Land-grant Universities, Association of
Association of Teacher Educators, College and University
Professional Association for Human Resources, Consortium of
Universities of the Washington Metropolitan Area, Council for
Advancement and Support of Education, Council for Christian Colleges & Universities,
Council for Higher Education Accreditation, Council of
Graduate Schools, Council of Independent Colleges, Council on
Governmental Relations, Council on Social Work Education.
EDUCAUSE, Hispanic Association of Colleges and
Universities, NAFSA: Association of International Educators,
NASPA–Student Affairs Administrators in Higher Education,
National Adult Learner Coalition, National Association for
College Admission Counseling, National Association for Equal
Opportunity in Higher Education, National Association of
College and University Business Officers, National
Association of Independent Colleges and Universities,
National Association of Student Financial Aid Administrators,
National Collegiate Athletic Association, The Council for
Adult and Experiential Learning (CAEL), Thurgood Marshall
College Fund, UNCF (United Negro College Fund), UPCEA.
Mr. DANNY K. DAVIS of Illinois. Mr. Speaker, the Republican tax bill is a dangerous bill that raises taxes on 36 million middle class households; takes healthcare from tens of millions of Americans; skyrockets the cost of health insurance for all Americans, but especially for those who are sick or have preexisting conditions; and directly results in cuts to Medicare and safety net spending next year–all to give corporate special interests immediate, permanent, and monumental tax cuts.
Cut, cut, cut is all that I have heard this week: cut the safety net; cut service for the needy; cut service for the physically challenged; cut the poor; cut the homeless; cut Medicaid; cut education; cut out low-income tax credits; cut out new market tax credits; cut out social services; cut block grants; cut student loans.
Winter is here. Cut the Low Income Home Energy Assistance Program. If you live in Chicago, Minneapolis, the Midwest, or the Northeast, without any heat, you are subject to catch pneumonia and die. There is no doubt about it.
I can imagine that college residents, hospital administrators, and managers of programs are wringing their hands, wondering what they are going to do.
I heard a minister last Sunday at one of the churches in my community asking this, and he said: Pray, organize, vote. Vote against this bill.
Mr. BRADY of Texas. Mr. Speaker, I yield 3 minutes to the gentleman from Florida (Mr. Buchanan), chairman of the Oversight Subcommittee.
Mr. BUCHANAN. Mr. Speaker, I also want to acknowledge our incredible chairman and his leadership over the last 7 years I have been here and working this plan forward. It is an exciting time for all of us. Mr. Speaker, I rise today in support of the Tax Cuts and Jobs Act, legislation to provide tax relief to middle class families and small- business owners across America.
As a businessman for more than 30 years, I have had the opportunity to employ thousands of workers. I have seen firsthand how broken our tax system can be for many hardworking Americans.
Under this bill, not only will the average family of four receive a tax cut, but small businesses will finally be taxed at a lower rate to help them expand and grow jobs in America. According to the nonpartisan Tax Foundation, this bill will create 1 million new jobs and grow the economy by 4 percent, a growth rate this country hasn’t experienced since 2000.
It is time to give all Americans a break in terms of their taxes. With passage of this bill, we will finally have the opportunity to help middle class families and get our economy back on track. I urge support for this critical bill to cut taxes and reform our tax system.
Mr. NEAL. Mr. Speaker, I yield 2 minutes to the gentleman from New York (Mr. Higgins), one of the most knowledgeable members of the Ways and Means Committee.
Mr. HIGGINS of New York. Mr. Speaker, this is nothing more than a hit job on middle America to pay for a massive tax cut for corporate America. The only certainty from this charade is slower economic growth, more income inequality, and exploding budget deficits. When you take away tax relief from sick people who were born into illness and for whom insurance doesn’t provide enough coverage, that is a hit on middle America.
When you remove help for people who are just trying to make college affordable, who are trying to make themselves better, that is a hit on middle America. And when you take away healthcare from 13 million Americans and raise the cost for millions more because you needed another $300 billion to give more to corporate America, that is a hit on middle America.
And when 152,000 people from my community and millions more from New York lose 100 years of protection from State and local taxes, protection worth more than $8,000 per household, that is a hit on my community, it is a hit on New York State, and it is a hit on each and every community in America.
And when you take away the essential needs of middle America to feed the rapacious needs of corporate America, it is a hit on fundamental fairness, and that, Mr. Speaker, is a hit on all of America.
(Congressional Record – Tax Cuts And Jobs Act Part 1)
(Congressional Record – Tax Cuts And Jobs Act Part 2)
(Congressional Record – Tax Cuts And Jobs Act Part 3)
(Congressional Record – Tax Cuts And Jobs Act Part 4)
(Congressional Record – Tax Cuts And Jobs Act Part 5)
(Congressional Record – Tax Cuts And Jobs Act Part 6)
(Congressional Record – Tax Cuts And Jobs Act Part 7)
(Congressional Record – Tax Cuts And Jobs Act Part 8)
(Congressional Record – Tax Cuts And Jobs Act Part 9)
Congressional Record – Tax Cuts And Jobs Act (Part 10)