There’s a lot that’s bad in the tax scheme Republicans are cooking up on Capitol Hill right now, but one particularly odious ingredient is a proposal to eliminate the deduction for state and local taxes (SALT) which could end up undercutting funding for education, fire and police protection, and other public services in communities across the country.
Eliminating the SALT deduction would be “an assault on local governance” and the “long-term economic stability in our communities,” says the National School Boards Association.
Critics of the Republican tax plan on the left side of politics have focused mostly on the tax cuts for the rich and corporate loopholes that are likely results. But education advocates are warning of the negative consequences of getting rid of SALT deductions, and progressives should heed the warnings and join the effort to oppose this proposal.
Taking SALT deductions out of federal taxes “is a much bigger threat” to public schools than some of the other punitive measures Republicans are aiming at local schools, Michal Dannenberg writes for Democracy Journal.
Here’s why: A deduction from federal taxes – also called a tax subsidy or tax expenditure – is as good as an outright appropriation of federal dollars for a particular service like education. “An individual in the 28 percent marginal income tax bracket that itemizes and deducts $5,000 in property taxes,” Dannenberg explains, “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” in the form of forgone revenue.
Money coming to local school from the federal government – via the deduction for state and local property taxes – “totaled over two times the size of direct grant aid provided through the Title I and IDEA programs for disadvantaged students,” Dannenberg says. Title I and IDEA programs represent the two largest federal programs providing direct aid to K-12 schools.
So, ending the SALT deduction would immediately close this spigot of federal dollars to local coffers. But that’s not the end of the damage.
In the short term, the money would continue to flow to local governments from citizens paying their full share of taxes. But in communities feeling the stress of higher taxes and strained household budgets, how long would it take for voters to challenge their local officials to cut taxes that are no longer deducted from federal returns?
“Repealing the federal SALT deduction would likely result in cuts down the road to state and local services,” writes Michael Leachman and Iris Lav of the Center on Budget and Policy Priorities. “These cuts could well include reductions in support for education — the single largest part of state budgets — as well as cuts to infrastructure spending and other investments that are key to the nation’s long-term economic prospects.”
Also, “Repealing the deduction would 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 K-12 and higher education, health care, and other services,” CBPP’s economists explain. “To balance their budgets with insufficient revenue, state policymakers would likely make cuts in such services that would be widely felt.”
Should the repeal of SALT deductions happen, states with higher local taxes will feel the strain first, including high-tax states such as California, New York, New Jersey, Connecticut, Maryland, and Massachusetts.
But it’s a mistake to believe the impact will be restricted to these states.
Minnesota Governor Mark Dayton warns a repeal of the SALT deduction would directly impact about 900,000 Minnesota families who would lose an average of $12,000 in deductions when they file taxes.
Even states with no income tax will also be affected. In Texas, “over 2 million households — 18 percent of all filers — deducted about $4.8 billion in state and local sales taxes in 2015,” writes CBPP”s Leachman. Should a SALT repeal pass, those Texas taxpayers can kiss that deduction goodbye.
Education funding across the country is already in crisis. The Republican tax scheme to repeal the SALT deduction will just make the situation wose and commit deeper harms to students and families.
The American Federation of Teachers warns, “This plan is especially dangerous for middle-class families who own homes and pay property taxes, or who live in communities that invest in their schools, police and fire departments, sanitation and other vital services, like rebuilding roads, bridges, and water and electric systems.”
You can support AFT’s effort to block the Republican tax scheme here.