How the Tax Bill Hurts the Poorest Schools

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It’s common to hear people say that the quality of students’ education shouldn’t depend on their ZIP code. But the Republican House and Senate tax bills would make ZIP codes matter more than ever. They would create an incentive to hoard opportunity by raising funds that remain close to home.

Why does our education system have so much at stake? A vast majority of funding for public schools, about 90 percent, comes from the money raised by state and local governments. Currently, taxpayers can deduct their state and local taxes, and that deduction makes them more likely to support higher spending on programs funded by those taxes, including public schools.

With its bills, Congress would significantly cut the deduction of state and local taxes, slicing into that incentive. This is why education advocates are fighting to keep the deductions, and why those who believe state and local governments are too big want to get rid of them.

After a consideration of eliminating all state and local deductions, current proposals have been marketed as a political compromise: Both bills take away taxpayers’ ability to deduct income taxes but allow a property tax deduction of up to $10,000 per year. The problem is that states depend more heavily on income taxes, and local governments on property taxes, so the compromise favors raising funds at the local level. Structuring it this way will only add to inequality in the school system.

As an economist who has studied education funding and policy, to me the historical record is clear: State-level school spending is critical. Economic segregation across school districts means some areas need an infusion of resources to have a chance at serving their students well, and states are the primary source of that infusion. Research shows that when states send more resources to their neediest districts, achievement levels in those districts rise.

But states are already in a tough spot: The most recent data show they are still recovering from the recession, with over half of them spending less on K-12 now, in inflation-adjusted terms, than they did in 2008.

It’s worth noting that more is at stake for states than just education funding. Federal spending cuts are sure to come to pay for this tax bill. There will most likely be calls for cuts in programs that provide food, health care and income assistance to poor families. Just as people will look to the states to fill these new holes in the safety net, it will be harder than ever for states to raise the funds to do so.

There is a more responsible way for Congress to handle the state and local tax deductions, for those looking to broker a compromise. Instead of allowing a deduction only for property taxes, Congress could permit a fraction of overall state and local income and property taxes to be deducted.

Just how big that fraction would be depends on the entire tax package and how much Congress is willing to sacrifice for the corporate tax cuts that economists and chief executives know won’t pay for themselves.

Congress is now hashing out the details to reconcile the House and Senate bills. Final language should reduce, rather than eliminate, the deductibility of both property and income taxes. This would help win support from California and New York Republicans, whose constituents are poised to take a huge hit from the bills. At the same time, it would empower states “to improve the lives of disadvantaged families and provide all children the opportunity to succeed” — a Republican Party goal listed in its “A Better Way” policy paper.