What could the Tax Cut Bill mean for afterschool programs?

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What could the Tax Cut Bill mean for afterschool programs?

On November 2 House Republicans released their proposed tax cut/tax reform package, called the Tax Cuts and Jobs Act. This bill is on an aggressive timeline and could pass the House as soon as the week of November 13. The House Ways and Means Committee will mark up the bill beginning at noon on Monday, November 6. It is expected to take several days to complete the mark up.

The tax cut bill released by the Chair of the House Ways and Means Committee Rep. Kevin Brady (R-Texas) is based largely on the Trump Administration’s tax cut outline released earlier this fall. According to the Ways and Means Committee, “The Tax Cuts and Jobs Act will deliver real tax relief to Americans across the country – especially low- and middle-income Americans who have been struggling for far too long to earn a raise and get ahead.” Under the legislation, the authors state that a typical middle-income family of four, earning $59,000 (the median household income), will receive a $1,182 tax cut, which is about $22.73 a week or $3.24 a day.

There are several possible impacts of the tax cut bill on the afterschool field:

Cuts to mandatory and discretionary spending

The primary concern of many education advocates is the impact of the Tax Cut and Jobs Act on discretionary spending including federal funding for afterschool programs (including 21st CCLC, CCDBG, Title I, AmeriCorps and other funding sources). Many believe that next year Congress will want to find additional funding to pay for some of the estimated $1.5 trillion over ten years that the tax cut bill will add to the federal deficit. Many fear that the increase in the deficit caused by the tax cut bill will likely be used to justify cuts to a wide range of mandatory and discretionary spending. Economists disagree on whether these tax cuts would spur economic growth, as the bill authors claim, and if any such growth would cover the increase in the deficit.

Elimination of the State and Local Tax Deduction (SALT-D)

The Tax Cuts and Jobs Act includes a proposal to eliminate the state and local tax deduction (SALT-D)— which allows taxpayers who itemize deductions on their federal income taxes to deduct state and local property taxes and either state and local income taxes or general sales taxes. Concerns have been expressed about eliminating this deduction because the SALT deduction helps state and local governments fund public services, such as public schools, that provide widely shared benefits. The deduction makes it more palatable for higher-income filers to support state and local taxes. Repealing the deduction may force states and localities to lower state and local income taxes — many of which already face serious budget strains — thus decreasing revenue needed in the coming years to fund K-12 and higher education, health care, and other services. States and localities could also respond by raising taxes or fees impacting middle- and lower-income individuals as opposed to higher-income residents who would be most affected by the deduction’s loss. This would make state and local tax systems even more regressive overall. 

Change to child tax credit:

  • The bill modestly increases the child tax credit from $1,000 to $1,600, but the increased amount is not refundable, so an estimated 16 million children in low-income working families would see no benefit from the increase
  • The bill makes no changes to the Child and Dependent Care Tax Credit
  • The bill eliminates Dependent Care Assistance Plans used by many middle-class families
  • The bill eliminates the employer-provided child care tax credit

Changes impacting charitable deductions that support non-profits like many afterschool providers

The National Council of Nonprofits warns that charitable deductions are likely to go down under this bill. While the GOP enables the wealthy to continue deducting their charitable giving, many middle- and upper-middle-class families would no longer benefit, because they would likely stop itemizing their deductions given the increase in the standard deduction. At the moment about 30 percent of Americans itemize, but under the proposed Tax Cut and Jobs Act, the standard deduction roughly doubles from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples, meaning fewer people would probably itemize. The bill’s authors argue that middle-class people should end up giving more to charity since they will pay less in taxes.

 

On the Senate side, Sen. Orin Hatch (R-Utah), Chairman of the Senate Finance Committee, is working on his own version of a tax cut measure. It is expected to be released before the Thanksgiving recess. Ultimately the two bills will need to be reconciled. Republican Leadership and President Trump are pushing for a final bill by Christmas. For more information, click here.

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