How the Senate’s Tax Bill is Taxing on Generation Z’s Future
By: Sachi Madan, Contributor
In the early hour of 2am on December 2nd, 2017, the Senate passed the largest tax reform bill since the 80’s. Scribbling amendments into the margins and debating every issue representing the pinnacle of partisanship, the legislation was at a standstill with 50 votes for and 49 against. The 51st tie-breaker vote was cast by Vice President Mike Pence who was summoned by Congress after midnight. While the Republicans claim that this legislation is beneficial to the economy through its corporate tax reductions from 35% to 20%, the proponents fail to recognize the ramifications of this bill on education, and more specifically, Generation Z – the current generation making its way through K-12 education and slowly entering college. The bill harms education in three specific ways: cutting tax deductions for state governments, giving parents untaxed bank accounts for K-12 education, and taxing college endowments.
One of the many clauses in the over 400-paged bill terminates tax deductions for state, county, and city governments. Explicitly, it cancels deductible State and Local Taxes (SALT) for constituents on up to the first $10,000 that they pay. In simpler terms, this bill ends the process where constituents could request the federal government to pay them back for state income or sales taxes that they paid, ultimately harming many individuals and families. It means that constituents now fully take the brunt of the double tax burden. In turn, this impairs the states’ funds immensely. The SALT Deductions that are being removed act as a subsidy to the state and local governments at the moment, allowing them to tax their citizens and receive funds without fearing that they are taxing their people too much. At the moment, according to the Tax Policy Centre, a state earns an average of 48% of its revenue from its taxes while less than a quarter of their revenue comes from federal grants. Now, however, states will have to decrease their dependence on money from their constituents because this ‘subsidy’ has been significantly reduced in the tax code.
It’s important to realize where those funds were being used. These taxes helped pay for state activities on the local scale, including infrastructure maintenance, healthcare, and education. In fact, it’s predicted that education will be severely impacted. Since state governments will have less money, there will be less to give to school districts and develop education systems for public schools. But what about federal money? Can’t that fund schools? According to NPR in 2016, the federal government only funds an average of 10% of a school. The rest of the money comes from local and state taxes, which will now be drastically reduced. And what happens when a school’s money is cut? They lose classes that they deem unimportant, like arts and music classes. They can’t update their facilities to ensure that every student has an enriching educational experience with adequate classroom supplies, materials, and rooms. They reduce funds for important extracurricular activities such as football, debate, and theatre that help create well-rounded students. This is something that will impact everyone in a public school, but more specifically, it will impact underprivileged areas the most. In more economically privileged school districts, parents often gather to donate money to the schools when there is a shortage, but districts where parents are struggling to make ends meet will see their funds depleted, with no back up to save their children’s education.
But the problem stretches deeper when we realize that this bill reduces the incentives to actually help those public schools in the first place because it encourages parents to move their children to private schools. One of the clauses in the legislation says that parents can have $10,000 untaxed in a bank account to spend on just K-12 education. Since public schools do not cost additional money to attend while private schools do, parents would save money on their taxes incentivizing parents to move their children to a private school. The biggest problem with this trend is that there will be less money in public schools because of the removed SALT deductions, meaning parents who can afford to will simply send their children to a private institution. Seeing this growing trend, the federal government will be unwilling to allocate more money towards the public education system. This vicious cycle will continue and leave the public school system to be a stranded island destitute of money that it so greatly needs. And who is stranded on this island? Economically disadvantaged folks who are, even with the tax break on $10,000, unable to send their kids to a private school.
A third problematic clause for education in this bill is a 1.4% tax on college endowment funds on colleges whose annual endowments add up to more than $500,000 per student. This affects about 30 schools across the country – not just schools like Harvard and Yale, but other colleges like Amherst and Denison. The problem with the legislation is that it assumes that every school receiving endowments so high is wealthy enough to give part of that money to the federal government. However, that is a false assumption. While on paper many of those schools seem to have plenty money, in reality, they don’t have enough funds, in general, to sustainably run their institutions. The bill does not take into account the situation of the universities that the federal government will be taking funds from, nor does it take into account what that endowment money is actually used for. Oftentimes it’s used for financial aid, research, and building facilities. So we see that when this bill is ultimately implemented, it will take money away from those essential purposes. We see schools like Amherst that will be affected by the levy, yet 21% of their students qualify for PELL grants and are deemed underprivileged. Those students need a lot of financial aid from their college, and this bill prevents them from fully accessing it by decrease the funds used to give them that money. Even Ivy League institutions, who promise to help their attendees with every penny that they can, will be unable to provide much aid after this legislation. Harvard will lose approximately $41 million after application of this clause, resulting in middle and upper-middle-class families who need some financial aid being unable to receive any amount to actually pay for these colleges. This can lead to increased student debt or a decrease in the number of students who can actually afford university. Additionally, there will be less money for research and facilities which also depend on the endowment money. These fixtures are often what allows a school to cultivate its students’ thinking and enhance their learning, and helps them increase the number of scholars that are actually accepted. Ensuring that the education provided is top notch and reaches the highest amount of people possible, this money is essential to develop the programmes at universities.
But who does this impact on the education system ultimately harm? Not only is it the parents paying for the education, but it is the people who are actually receiving it. What is known as Generation-Z, the people who are currently in the education system and are starting to move to college are the ones whose high school facilities, classes, and clubs are going to see a decrease in funding; the ones who are going to have a federal government uninterested in re-funding their schools for the money that they lose; the ones who are going to receive less financial aid than ever before, and not see the new research and facilities that they want to see. But why are the impacts on the education system so important? The simple answer is that education is the sole way for advancing a country economically and socially. In economic terms, it helps students find jobs, start businesses, and stand up for changes they want to see. While proponents of this act argue that they will see economic advancement with the corporate tax cut in the legislation, they will see a long-term economic slow down when students in this generation, the future of our nation, receive inadequate learning opportunities. In terms of social advancement, education helps to level the playing field; and while this system isn’t perfectly equitable yet, it still provides chances for students to find a way out of their currently undesirable economic conditions. These new taxes and changes clearly benefit the rich, while the poor get poorer and aren’t given the same opportunities. Students across the nation are going to be missing out on advancing economically and socially, something that every student, every educator, and every parent should stand firmly against. This change is unacceptable and is not only taxing to the future of Generation-Z, but also to the future of this nation. Contact your local senator, stand up for your educational rights, and reverse this grotesque encroachment on your future today.
Image Credits: https://www.cnbc.com/2017/07/17/senators-mike-lee-and-jerry-moran-oppose-senate-health-care-bill.html