The Impact of the Tax Cuts and Jobs Act on Support for Schools

• In Event: In Honor of Ronald C. Fisher and His Landmark Text on State and Local Public Finance: Is the US system of fiscal federalism too "SALTY"?

Abstract

The 2017 Tax Cuts and Jobs Act (TCJA) increased the federal standard deduction and instituted caps on state and local taxes (SALT). These changes decreased the number of taxpayers itemizing deductions and reduced the amount some taxpayers can deduct from their federal income taxes, thereby raising the effective cost of education expenditures for these taxpayers. This may have ultimately led to reductions in the support for these expenditures and the property taxes that primarily financed them. In this paper, we use data from Michigan and Texas – two states with notably different baseline rates of property tax itemization – to examine the impact TCJA had on voter support, passage, the number, and size of local school district bond referenda. We exploit variation across school districts in the share of potential voters that no longer itemizes or is affected by the SALT cap after TCJA. To the extent that TCJA had an impact on support for local school funding, it may have unintended consequences on educational expenditures and ultimately student learning (Jackson, Johnson, and Persico, 2015).

Authors

• William Hoyt, Martin School of Public Administration and Department of Economics, University of Kentucky

• Tangchen Liu, University of Kentucky

• Caroline Weber, Martin School of Public Policy & Administration, University of Kentucky

• Ron Zimmer, University of Kentucky