Letter to Senate Finance Committee on Tax Reform
July 25, 2013
Dear Senators Baucus and Hatch:
As Congress contemplates comprehensive reform of the federal tax code, on behalf of the more than three million members of the National Education Association we urge you to retain—in some cases, expand—the provisions discussed below.
Educator tax deduction
NEA strongly supports the maintenance or enhancement of the educator tax deduction, which helps recognize the financial sacrifices made by teachers and education support professionals. With one in five children living in poverty and school budgets slashed, unless educators reach into their own pockets many students will not have the supplies and instructional materials they need to succeed.
In NEA’s most recent survey (Status of the American Public School Teacher2005-2006, March 2010), 97 percent of the respondents had spent their own money to meet the needs of their students—on average, $477 a year to buy classroom supplies such as books, pencils, paper, and art materials. Many educators are finding the need to buy supplies for their students has increased in these difficult economic times, as funding cuts lead to shortages in essential materials and more students come to school without basic learning tools. A large majority of educators also spend an average of $15 a month out of their own pockets to feed students.
In a 2010 survey by Office Max, 70 percent of teachers reported that their schools could not provide all the tools they need to teach their students effectively. Moreover, 82 percent of teachers think it is their responsibility to ensure students have the best learning experience possible—no matter the price tag—and spend their own money to buy supplies for their students each year. Everyday classroom supplies such as pencils and pens (78 percent), prizes and incentives (72 percent), and arts and crafts supplies (72 percent) top the list of purchases teachers make with their own money.
Qualified Zone Academy Bonds
NEA supports tax expenditures for the financing mechanism known as Qualified Zone Academy Bonds (QZABs). Investors receive a federal tax credit equal to the amount of interest payable on the bonds, thereby relieving local taxpayers and municipalities of the interest burden. A school that is awarded a QZAB may use the funds to renovate and repair buildings; invest in equipment and up-to-date technology; develop challenging curricula; or train quality teachers.
QZABs help meet the pressing need to modernize educational facilities. On average, the buildings that house our public schools are more than 40 years old.
The American Society of Civil Engineers gives the condition of our schools a grade of “D” and attributes the failure to upgrade them to “problems in the financial sector and declining revenues for states and local governments”(Report Card for America’s Infrastructure, 2009). According to Fix America’s Schools Today (FAST!), a project of the Economic Policy Institute and the 21st Century School Fund, our schools need $500 billion in repairs and upgrades.
NEA believes that anyone who is qualified and interested in post-secondary education should have the opportunity, regardless of ability to pay. To that end, NEA supports expansion of the American Opportunity Tax Credit (AOTC). Created as part of the American Recovery and Reinvestment Act, the AOTC—up to $10,000 for four years of college—is critical to increasing access to higher education and making it more affordable, especially for low-income students and families.
NEA also supports expansion of loan forgiveness programs for students who enter education and other public service careers. Spiraling college costs have made it increasingly difficult for students of limited means to afford post-secondary education. And, far too many of today’s students rely on loans in order to attend college. The resulting debt burden often limits career choices and prevents many talented students from pursuing careers in public service, including as teachers.
Federal deduction for state and local taxes
Eliminating the federal deduction for state and local taxes would undermine equity of opportunity. State and local public spending would decline, and the federal tax burden would shift from low-tax states and to high-tax states, exacerbating the inequalities that already exist. Specifically:
“For example, in 2008, potentially deductible state and local taxes in New York comprised approximately 9.1 percent of total personal income whereas deductible taxes in nearby Delaware accounted for approximately 4.7 percent of total personal income … If the federal government reduces tax rates to maintain revenue neutrality—the base is larger with the elimination of the deductibility allowing for lower rates to yield the same revenue—then the effect is even more pronounced. The higher the state and local tax burden (as a percentage of total income), the lower the new federal tax rate would be under revenue neutrality.” (Source: Congressional Research Service, Federal Deductibility of State and Local Taxes, September 2012).
Heathcare tax exclusion
NEA strongly supports the tax exclusion for employer-provided healthcare. Over the course of their careers, many public education employees have traded salary increases for the long-term security of a comprehensive health plan. Telling hard-working public school educators that benefits will be cut or that they will pay more taxes would unfairly penalize them. A tax on salaries above a certain amount would also be unfair to experienced educators who, after decades of dedicated service, have climbed to the top of their salary schedules. Limiting or capping the tax exclusion for health benefits could have a disastrous effect on public education by discouraging highly qualified workers from entering or staying in the profession.
Eliminating or capping the tax exclusion would also remove a key incentive for employers to provide coverage. In addition, taxing benefits would encourage younger and healthier workers to pass up employer-sponsored coverage and seek less expensive, less comprehensive coverage. The loss of these workers to employer risk pools would drive up the cost of coverage for older and less healthy workers. It would also increase their tax burden.
Home mortgage interest deduction
Ending or capping the home mortgage interest deduction could have a detrimental impact on local funding for public education. It is widely believed that the value of this deduction is embedded in home prices. If it were eliminated, the ongoing economic recovery could falter and home prices plummet again. That, in turn, would reduce revenues from property taxes. The implications are profound, especially for K-12 public education:
“The property tax is the financial backbone of local governments and school districts, accounting for nearly three-quarters of total local tax collections. It is the most significant local revenue source for financing K-12 education, police, fire, parks, and other services provided by local governments. In 2010, about 29 percent of total K-12 funding was supported by local property taxes.” (Source: Rockefeller Institute, University at Albany, State University of New York, The Impact of the Great Recession on Local Property Taxes,” July 2012).
We thank you for the opportunity to provide you with this critical information concerning education tax deductions and expenditures, and other tax provisions that affect public education and areas of importance to NEA. We look forward to collaborating with you throughout the tax reform process.
Director, Government Relations