Congress Approves Sweeping Tax Reform Legislation

The House and Senate passed a major tax reform bill this week, mostly along party lines, that could have a negative impact on State and local education funding down the line.  The Tax Cuts and Jobs Act includes a number of provisions that will affect K-12 and higher education.

Over the past couple of months, Congressional Republicans have been working diligently to ensure a tax reform bill made it to President Trump’s desk by the end of the year.  After the House and Senate each passed their own versions of the legislation, members from both chambers appointed to a conference committee were tasked with reconciling those differences.  An agreement was reached late last week, allowing for the House and Senate to vote on final legislation early this week. 

The final legislation places limitations on the deduction available to taxpayers for paying State and local taxes.  Changes to the so-called “SALT” deduction mean that taxpayers will now be able to deduct only up to $10,000 annually of either a combination of property and income taxes or property and sales taxes.  The original House and Senate proposals would have allowed taxpayers to deduct only property taxes, eliminating the deduction for income and sales taxes.  Education advocates and officials have expressed concern over the impact limiting the SALT deduction will have on future education funding.  States and local communities may feel pressure to reduce their own taxes in an effort to limit the overall burden on taxpayers, therefore leading to less State and local revenue available for education. 

Also impacting education funding is the elimination of qualified school construction bonds and qualified zone academy bonds, which are tools often used by schools to reduce capital costs.  The qualified zone academy bonds, in particular, are used frequently by charter schools to finance school facilities.

Another item that the House and Senate proposals initially moved to alter is the deduction available to teachers for personal money spent on classroom supplies – currently set at $250 annually.  The House proposed eliminating the deduction altogether while the Senate bill would have doubled it to $500.  Ultimately the compromise reached was to maintain the deduction at the current $250.

School choice advocates received a win in the tax legislation.  The bill allows individuals and families to use up to $10,000 annually of their 529 College Savings Plan for K-12 education expenses, such as private school tuition.  The bill originally expanded the use of those funds for homeschool costs as well, but that provision was removed last-minute after it was found to violate requirements of a special rule in the Senate that allowed Republicans to pass the legislation with only a simple majority.  Although this is the first school-choice initiative endorsed by Congress under the Trump Administration, some school choice advocates have noted that the tax provision will primarily help wealthier Americans who can afford to set aside money in these savings accounts or are already sending their children to private school, as opposed to low-income families. 

On the higher education front, the final legislation left most proposed changes to tax benefits for students and loan borrowers untouched.  The House had proposed eliminating the tax-exempt status of graduate student tuition waivers and the provision allowing student loan borrowers to deduct interest paid on their loans, but those items were left out of the final bill.  The key higher education item that Congress did authorize is a 1.4 percent excise tax on investment income at private colleges of certain student enrollment and endowment sizes.

President Trump and Republicans are considering the passage of this tax reform bill a major legislative achievement.  The President signed the bill Friday, enacting the bill into law.


Resources: Andrew Kreighbaum, “Final GOP Deal Would Tax Large Endowments,” Inside Higher Education, December 18, 2017.Andrew Ujifusa, “Four Things for Educators to Know About the Tax Bill Congress Just Passed,” Education Week: Politics K-12, December 20, 2017.

Author: KSC

About the Author

Kelly Christiansen is an associate with the Washington, DC law firm of Brustein & Manasevit, PLLC. Established in 1980, the Firm is nationally recognized for its federal education regulatory and legislative practice, providing legal advice regarding compliance with all major federal education programs as well as the federal grants management requirements, including the Education Department General Administrative Regulations (EDGAR). In addition, they work with agencies on federal spending flexibility, allowability, policies and procedures, audit defense and resolution and legislative updates. The Firm provides government relations services for the National Title I Association.