Congress Made it Harder to Give Teachers Raises

Distributed via OtherWords.org

[Note to readers: Due to technical difficulties, I’ve not been able to post for awhile, but the problem seems corrected. This is a piece I had published at our free syndication service. OtherWords.org, two weeks ago, for those who’ve not seen it elsewhere]

In just a few months, we’ve seen teachers in five states walk out of the classroom to protest their abysmal pay.

Stingy state budgets are mostly to blame for low teacher pay and poor school conditions, but there’s a federal tax connection, too. Unfortunately, last year’s Republican tax plan could make keeping good teachers in the classroom more difficult than ever.

Raising teacher pay requires money, which at some point requires new state tax revenue.

Now, most state taxpayers will tolerate tax increases when they know those taxes will fund education. But in many places, state lawmakers have only so much room to raise taxes before voters express their displeasure come election time.

The jam state governments may find themselves in is that Trump and his Republican friends in Congress effectively just increased state income and property taxes. A lot. Which means voters won’t be too keen to see another increase so soon.

How can Congress increase state taxes? By increasing the real cost of state taxes people already pay, that’s how.

From the enactment of the federal income tax in 1913 until last year, most higher-income state taxpayers could deduct their state income and property taxes on their federal returns.

In recent years, an affluent taxpayer would receive about $1 back, in the form of a federal income tax reduction, for every $3 of state income or property tax paid. So a $3,000 state income or property tax bill felt like a $2,000 expense.

The Trump-Republican tax plan changed all that.

The deduction hasn’t been eliminated entirely, but it’s now capped at only $10,000 in state income and property taxes. For the majority of Americans, who no longer claim itemized deductions, the itemized deduction for state income and property tax is now meaningless.

Which means that $3,000 state income or property tax bill now feels like a $3,000 expense. That’s the same as a 50 percent state tax increase — which will feel even worse if states pass modest tax increases to cover long overdue raises for teachers.

Was there a good reason Republicans put state lawmakers in such a bind? No — only a very bad one.

Congressional Republicans and Trump officials claimed that the deduction for state and local taxes was a subsidy to high tax states that burdened low tax states.

But they had it backwards. It’s the absence of a deduction that creates a subsidy, which burdens high tax states and benefits low tax states.

Suppose I pay an additional $300 in state income tax to pay teachers. The teachers who receive that $300 will pay federal income tax on it, plus federal employment tax. And the state or county paying those teachers will pay federal employment tax as well.

When you do the math, the $300 going from my pocket, to the state treasury, to teachers would nearly break even for the IRS if I’m allowed to deduct my state income tax payment.

Which means the folks subsidizing deductions of state taxes are the teachers and other workers who pay federal taxes on their wages. But thanks to congressional Republicans, the state taxpayers no longer see a federal tax reduction.

Which means that the states that pay their teachers a decent wage are now subsidizing the states that pay their teachers poorly.

That’s probably what Trump and his Republican friends wanted all along. But it’s not what the people who educate our kids deserve.

12 responses to “Congress Made it Harder to Give Teachers Raises

  1. Sen. John Kavanagh

    I do not question your intellectual consistency, you are not AzBM.

    Regarding your comments:

    1. Corporations are not really taxed because much of their taxes are passed thru to their customers.

    2. Taxing wages would be poor tax policy because wages are an input to production and taxing an input results in double taxation, should the good be taxed upon sale.

    3. Allowing a tax deduction for taxes paid to another jurisdiction is not taxing an input but it is taxing payments made to an entity that provides one with services. It is a quid pro quo and is different than wages. Although I do not believe that all tax payments should be denied deductibility.

    4. I do not believe that limiting deductibility for higher SALT is poor policy given that its usage is concentrated in a handful of states (NY, NJ, Cal. and Conn.) Thus creating the poor tax policy of the rest of the country’s taxpayers subsidizing the higher public benefits received by a minority of U.S. residents.

    5. Finally, your statement about Republican motives for supporting lower taxes is not true, at least from my observations over a lifetime of conservative activism. You wrote:

    “When we devalue the federal tax benefit of state tax payments, we cause rich people to increase the pressure on legislators like you to reduce state level income taxes. And legislators like you buckle under the pressure and undermine the public school system. And we’re all worse of for it.”

    Conservatives do not need rich people to pressure us to keep taxes low. We do so because we believe in limited government and that low taxes stimulate economic growth. Agree or disagree, that is what motivates most of us and not pressure from the rich. In fact, many rich people are liberals who support high taxes because they are less impacted by high taxes than middle class and upper-middle class residents.

    Always interesting to read and respond to your posts, when you are not being snarky.

    • Regarding your item 4, did you read my post? It’s just not so. In fact, it really works the other way.

      Moreover, how then should we deal with states like Texas, Delaware and Alaska, which use revenue streams from non-tax sources to fund education and other state programs for residents. If Texas distributed its royalties to Texans, who then paid the $$ back in state tax to pay for education, the royalties would be income and, under the new law, the state taxes would largely be non-deductible. Instead, Texas uses the royalty income directly to pay for public education. But the substance is the same. If we are to maintain the integrity of the tax law, shouldn’t Texans have to recognize and pay federal tax on state royalty income used for their benefit?

      • Sen. John Kavanagh

        Yesterday’s Wall Street Journal had an editorial or perhaps a column that said about 70% of SALT savings came from the state’s I mentioned. Be that as it may.

        Regarding the royalty argument, it seems weak. Royalties are neither personal nor corporate income. Would you also want to tax Arizona state trust land revenue before it goes to fund education. Your argument leads us down a slippery slope to a tax swamp.

        • I think you’re a little out of your depth here.

          • Sen. John Kavanagh

            You seem to have reverted to snarky. Too bad.

          • It wasn’t intended as snark. I’ve been practicing tax law for 35 years, and I think you’re a little out of your depth.

          • Sen. John Kavanagh

            Then you are guilty of reckless snarking.

          • AZ BlueMeanie

            Careful, Bob. Johnny has a history of criminalizing everything that offends him by statute. Who knew that “reckless snarking” could be criminalized next. Satirists and comics everywhere should take notice.

          • AZBM, what I find remarkable, and depressing, is that the value he sees in the back and forth is in the verbal sparring. It hasn’t crossed his mind that he might be able to learn something from me if he tried to understand what I’m presenting to him beyond the minimal comprehension needed to concoct his own counter-arguments.

            Paul Krugman often notes that it’s nearly impossible to get someone to understand something if his job depends on him not understanding it. That’s where we are with John. He wants to visit the site and spar with us, which is okay, but will never entertain the thought of trying to actually learn something.

    • For Sure Not Tom

      Literally none of what you said is true.

      Just two quick points.

      First, a publicly traded corporation that uses Arizona’s roads and services and depends on a workforce that Arizona paid to educate, that sends the profits they make here to Wall Street, should pay taxes in Arizona.

      People pay taxes and corporations are people, right? Glad we agree.

      Second, a sales tax hurts poor people. A person that makes 100K a year doesn’t feel a sales tax the same way a person making minimum wage does.

      You should learn how percentages work.

      And a quick question, if rich people aren’t paying you off to give them big tax breaks, how come you always give rich people the biggest tax breaks?

  2. Sen. John Kavanagh

    So initially progressive Democrats criticized Trump’s tax bill because it favored the wealthy and now you object to the wealthy losing a tax break. Wow!

    • Progressives, including me, protested the elimination of the SALT deduction from the start. Go check my posts at inequality.org if you don’t believe me.

      I object because it’s bad tax policy. I think corporations are undertaxed, but if progressives proposed that corporations be denied a deduction for wages paid to workers, I’d be against that too. Because it would be bad policy.

      And here’s the thing, John. When we devalue the federal tax benefit of state tax payments, we cause rich people to increase the pressure on legislators like you to reduce state level income taxes. And legislators like you buckle under the pressure and undermine the public school system. And we’re all worse of for it.