The Effect of TCJA on Public Education Finance and Expenditures

• 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

We explore the impact of federal tax deductibility of state and local taxes paid on the principal expenditure of local governments, primary and secondary education. We utilize the variation in the intensity of the change in deductibility by region introduced by the Tax Cuts and Jobs Act of 2017 to identify the effect. We use IRS Statistics of Income data at the ZIP code level aggregated and matched to school district revenue and expenditure data from the Census Bureau's Annual Survey of School System Finances from 2013 - 2022. In a difference-in-differences framework, we find no evidence that per-pupil revenues from local or state sources or per-pupil expenditures decreased more in school districts that had larger increases in their average after-tax cost of local public goods. Further, school districts that had larger declines in their aggregate federal tax liability did not exhibit larger increases in revenues or expenditures per pupil, suggesting that TCJA's windfalls were put to other uses.

Authors

• Erin Huffer Kramer, emh2257@tc.columbia.edu

• Andrew Samwick, andrew.samwick@dartmouth.edu