This article appeared in the Winter 2017-18 edition of The Classroom Teacher.

Vowing to have a final tax overhaul bill to President Donald Trump by Christmas, Republicans in both the House and Senate passed tax reform legislation by early December, with each chamber offering distinct approaches.

At press time, a conference committee between members of the House and Senate was working to iron out differences and negotiate a final bill, which would be sent back to both chambers for approval. (For the latest information, check tcta.org and the eUpdate newsletter.)

One of the biggest differences between the bills is the treatment of individual tax cuts. The House version would permanently collapse the existing seven individual tax brackets into four, while the Senate would keep seven brackets at reduced rates that are set to expire after eight years along with most other individual tax relief in the bill. Below, our lobby firm in Washington offers a summary of key education-related topics in both versions: 

Personal income deductions 

The House and Senate bills both double the standard deduction to $12,000 for single filers, and $24,000 for joint filers. Both bills eliminate the deduction for dependent children. The Senate bill increases the child tax credit from $1,000 to $2,000.

Currently taxpayers can deduct their state and local taxes (SALT) if they itemize deductions on their federal returns. Areas of the country with higher incomes and property taxes benefit the most from these deductions. The House bill repealed the deduction for income and sales taxes and capped the deduction for property taxes at $10,000. The Senate bill originally completely repealed SALT; but in its approved bill, it matched the House cap of $10,000. Eliminating SALT is said to be harmful to state budgets and entities, such as public schools, that rely on state funding. Repealing the income tax deduction would reduce support for raising state income taxes as the economy grows and perhaps over time lead to cuts in funding for education and other public priorities in states with an income tax.

Teacher spending deduction 

The House bill eliminates the Educator Expense Deduction; the Senate bill doubles the current deduction to $500. Nationwide, more than 3 million teachers currently claim the deduction.

Higher education savings accounts (529 Plans)

The House bill expands 529 plans, currently designated for higher education tuition, to allow unborn children to be designated as beneficiaries and cover expenses for apprenticeship programs and up to $10,000 of K-12 expenses (including tuition). The Senate bill would allow 529 plans to be used for public and private elementary and secondary schools and home schooling. The expansion to K-12 school expenses, including private school tuition, is seen as a step in promoting school choice (vouchers). 

Student educational expenses 

The House tax bill would repeal the Lifetime Learning Credit and the Hope Scholarship Credit, while slightly expanding the American Opportunity Tax Credit to a fifth year. It would also repeal several tuition waivers and tax as regular income. Graduate students and the TEACH program would be impacted by the increased cost of graduate education and universities may lose a pool of teaching assistants. The Senate bill preserves these education provisions.

Student loan interest deduction

The House repeals the ability of individuals to deduct interest paid on student loans, while the Senate does not offer any changes to the current policy. 

Charitable giving

The House and Senate bills would double the standard deduction for individuals and couples and reduce the number of taxpayers who itemize, reducing the value of the charitable deduction and leading to a potential drop in donations to all nonprofits. Charitable gifts support teaching, research and public service activities of colleges and universities.

Endowments 

The House and Senate bills would create a new excise tax of 1.4 percent on endowments at private universities with assets of more than $100,000 per student (House bill) and $500,000 per full-time student (Senate bill). 

Education finance 

The House tax bill would repeal private activity bonds and advance refunding bonds. The Senate bill would preserve private activity bonds but repeal advance refunding bonds, both of which are important for private and public institutions. Private activity bonds are utilized by nonprofit organizations to build classrooms and research infrastructure. Advance refunding bonds enable the refinancing of outstanding debt at lower interest rates.

Social Security offset

Neither the Senate nor the House addresses the Windfall Elimination Provision that impacts Social Security. An amendment was offered in the House tax committee to revise the current calculations for WEP but was not made in order/voted on.

Most provisions of a final tax bill are scheduled to take effect Jan. 1, 2018. If the process carries over to next year, lawmakers could make it retroactive or set a new implementation date.