Tax Law Impacts on School Choice: What You Need to Know
The recently passed 2017 Tax Cuts and Jobs Act is the most significant legislative achievement of the young Trump administration.
Despite recent celebrations by President Trump and GOP lawmakers however, a CNN poll released right before the bill’s passage showed 55 percent of the American public opposed the plan.
The lion’s share of opposition stems from the perception that the new tax law does more to benefit wealthy citizens and corporations than middle- and lower-class Americans, CNN reports.
Time will tell how the bill impacts the U.S. economy, and whether public perceptions shift as tax cuts are implemented. But, as experts begin to dig into the details, one thing is clear: The new law has implications beyond take-home pay and personal income.
School leaders, for one, should pay close attention to one provision that experts say could significantly impact students and families.
As Andrew Ujifusa reports in Education Week, the new law expands the tax-deductible use of 529 savings accounts to elementary and secondary education expenses, including tuition for private schools. Previously, funds from these accounts could only be withdrawn tax-free for the use of college tuition and expenses.
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While a previous version of the bill included an amendment, introduced by Sen. Ted Cruz (R-Texas), that also allowed funds from these plans to be used for home schooling, Senate rules on budget reconciliation dictated that such a provision be excluded from the law.
The move to make tax-exempt funds from 529 accounts available to help families pay for private school costs could represent a significant shift in the K-12 funding landscape. As Ujifusa writes, “The shift in 529 plans would be the biggest win so far for school choice advocates on the federal front this year since Trump took office.”
The 529 expansion could also have a significant effect on state tax revenue, writes the American Enterprise Institute’s Nat Malkus in a New York Times op-ed.
According to Malkus, 33 states have tax deductions aimed at boosting investment in 529 savings accounts. The original intent was to encourage parents to create long-term savings plans for their children’s college education.
By allowing 529 funds to be applied to K-12 schooling, Malkus writes, parents now have the opportunity to place funds in these accounts, avoid state income taxes, then apply the funds to private school expenses.
While the new law limits federal tax-free benefits to $10,000 annually, Malkus says that in states where tax-free caps are much higher—such as in Colorado, New Mexico, South Carolina, and West Virginia, where all 529 contributions are tax deductible—parents could potentially fully fund private school tuition without paying state taxes.
This would precipitate a significant drop in state tax revenues and—potentially, some say, K-12 public schools budgets.
Time will tell whether the new tax cuts have the impact that some education experts have predicted. Still, the new law continues a trend of school choice expansion on both the federal and state level.
According to the 74, Education Secretary Betsy DeVos—a strong proponent of school choice policies—expressed her support for the expansion of 529 funds. But, she told a crowd at a recent K-12 summit that more work needs to be done to boost school choice nationally:
“Anything that empowers parents and gives them more opportunities is a good thing, but it doesn’t address the needs of parents who are from lower incomes and does not empower them in significant ways. That has to continue to be an important consideration on our radar screen.”
What do you think of the new tax law? Will this new provision have a significant impact on public schools and school funding? Tell us in the comments.