The 5 Ways Tax Reform Will (And Won’t) Impact Education in Ohio

A classroom at Cleveland's Campus International School. (Ashton Marra/ideastream)
A classroom at Cleveland's Campus International School. (Ashton Marra/ideastream)
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The final few days of debate over the federal tax reform bill approved by Congress this week were hectic. Last minutes changes caused a hiccup in the process that forced members of the House to actually vote on the bill twice.

But now that its passed, everyone from economists to taxpayers are trying to figure out just what exactly made it through the process. Here are the top five things you need to know when it comes to tax reform and education.

1. A new cap on SALT tax deductions could negatively impact K-12 funding.

“SALT” stands for state and local taxes. The federal government gives taxpayers a break on these taxes by allowing those who do not take the standard deduction to calculate their local income and property, or income and sales, taxes and deduct it from their income before paying their federal taxes. Think of it as a way to avoid paying tax on those things twice.

But the new law caps those deductions at $10,000 and for people who make a lot of money and/or have really pricey homes, that deduction may not cover it, which means they’ll actually see a tax increase.

Those same people, though, are the ones who mean the most to Ohio school districts who want to pass a levy. They provide a lot of money when they vote to increase their property taxes for K-12 funding. Schools, however, could see even fewer Ohio voters approving levies after their federal tax bill goes up, which statistically is already a tough vote to get.

2. Ohio private schools could see a bump in enrollment, although it’s not likely to be a large one.

The bump could be the result of new rules for tax-free investment accounts previously restricted to use for college expenses. Each state runs these 529 college savings programs, which allow parents to grow their money and spend it without paying taxes on it.

The new tax bill, though, will expand the use of the program to K-12 private school expenses, a win for the school choice movement.

But because it takes a large investment in a short period of time to see your money grow by any significant amount before you start paying for private Kindergartens, the change is likely to only benefit people who have big bucks sitting around.

3. While the endowments of some major private universities will be taxed, Ohio schools are safe.

Initially, the House of Representatives approved a bill that created a 1.4 percent tax on the endowments, or investment accounts, of private universities with more than 500 students, if the account’s value equaled more than $100,000 per student. That would’ve impacted five Ohio schools: Oberlin College, Wooster College, Case Western Reserve University, Ohio Wesleyan University, and Kenyon College, according to an analysis done by The Chronical for Higher Education.

After adjustments in the Senate, the approved bill raised the threshold to schools with endowments larger than $500,000 in value per student. That saved all of the Ohio schools, but some 30 other universities across the country will still face the tax.

Think Princeton, Harvard, Yale…

4. Grad students can breathe a sigh of relief too.

Members of the House also proposed counting tuition waivers for graduate students as income and subjecting them to taxes. Colleges and universities award the waivers to students seeking advanced degrees in exchange for teaching classes or doing research.

After outcry from the academic world that the tax would decrease the number of students able to obtain the degrees, and in turn negatively impact the progress of research in the country, members of the House backed off of the provision, and it was taken out of the negotiated final version of the bill.

5. For Ohio teachers buying school supplies, the bill was a wash.

Talk to almost any teacher and they’ll tell you schools don’t pay for everything they need, and they often cough up the cash to make the difference. Well, the federal government has allowed teachers for years to deduct $250 of that spending from their taxes.

But the average Ohio teacher spend $508 each year out of their own pockets on school supplies like books, crayons and tissues, according to a survey from Scholastic (yes, the book fair people).

Senators proposed doubling the current deduction to $500, but in the House, Representatives said scrap it altogether. In the end, they compromised, leaving the $250 deduction in place. A wash for teachers everywhere.

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