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How The Republican Tax Plan Punishes Mass. Schools – Especially The Poorest

November 29, 2017

Just three years ago, Lawrence Public Schools welcomed Barack Obama’s Secretary of Education to celebrate the impressive gains made in this largely state-funded school system. Now, Paul Ryan and the House GOP tax plan want to effectively put a tax on funding schools in property-poor districts like Lawrence.

Ryan has proposed curbing the benefits of “SALT” tax deductions. SALT refers to “State and Local Taxes,” which taxpayers can currently deduct from their federal taxes. This move has been dubbed the “Blue State Tax” because of the disproportionate impact that it will have on higher-income, higher-tax states that tend to vote for Democrats. Such states understand that adequate taxation is required to fuel our strong economies and government programs. Few states fit the bill better than Massachusetts.

Under the current proposal, only the “S” is dropped completely - state income taxes would no longer be deductible. Taxpayers would still be able to deduct local property taxes up to $10,000 - a limit that will not lessen the benefit for most filers (in 2016, the average property tax bill for all but 20 of the state’s 351 cities and towns was below this threshold). But Massachusetts taxpayers will now be paying income taxes on money sent to the state, nearly 40% in the highest tax bracket.

Most people only consider direct spending when analyzing government finances, including funding our K-12 public education system. But tax expenditures - like SALT deduction - are just as important.

Take a family in Wrenthem, where the median family income is $100,000 and the median family property tax bill is just under $6,000. That family is in the 25% federal income tax bracket. If they itemize - which 80% of six-figure filers do - and deduct $5,000 in state income taxes, they have reduced federal taxes owed by $1,250. The federal government has been making it more attractive to fund state services - from transportation to education - by effectively kicking in $1 for every $4 from that taxpayer. It may not look like a federal appropriation, but it has that effect. 

If the GOP plan passes, the taxpayer will feel it - immediately. And anti-tax zealots, like ALEC, American Legislative Exchange Council, will not be far behind, pushing for another decrease in state taxes or at least holding the line on the current rate even if state budget challenges call for more funding.

This will have the effect of adding to pressure to lessen state taxes - and increase property taxes to compensate for diminished local aid. For that Wrenthem family, a deduction in state aid can be offset by a rise in property taxes - which still come with the federal subsidy. An increase from a $6,000 local property tax bill to a $7,000 property tax bill will bring $1,000 into Wrenthem that can fund schools - but only cost the family $750. This may like a silver lining - with healthcare and special education costs are driving upward pressure on school budgets, local taxpayers can still see an incentive to fund local schools.

That dynamic won’t be realized everywhere. Either way, for education advocates in Massachusetts, this tax plan still threatens the core Massachusetts value of progressive school investment.

Since the 1993 Education Reform Act, the state has acted aggressively to smooth the inequality inherent in a country where schools are mostly funded by local property taxes. For each district, the state calculates a “foundation budget,” or cost of adequately educating children in that district. It then assesses the portion of that cost that a district can pay, and furnishes the rest in the form of state aid. This aid goes largely to the poorest districts, like Lawrence, where state money constitutes 95% of school funding.

This monetary support also provides a clearer rationale for the state to intervene when districts have school performance that does not meet an acceptable baseline. It was exactly this kind of intervention that brought the Obama Administration, in the person of Education Secretary Arne Duncan, to visit the Lawrence Public Schools. After being “taken over” by the state through receivership, graduation rates jumped from less than 50% to more than 70%.

At DFER, we have been sounding the alarm on the Republican tax plan for most of the year. In March, the Director of Strategic Initiatives for our nonprofit partner Education Reform Now published The Unnoticed Threat to Public Schools, outlining how this aspect of GOP tax “reform” presents a grave threat to public education. Our fears are being borne out, and it is time to start paying attention.

Like much of the GOP plan, the SALT attack will increase inequality by undermining public services on which low and middle income families rely. Few states would feel that burden more than Massachusetts.

Liam Kerr serves as the Massachusetts State Director for Democrats for Education Reform (DFER).

 

 


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