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

• In Event: Dollars and Outcomes: How Federal, State, and Local Finance Policies Shape Public Schools

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 their property tax deductions, thereby raising the effective cost of education expenditures for these taxpayers. But several provisions also reduced average tax rates, thereby increasing the after-tax income of these taxpayers. The former may have ultimately led to reductions in support for these expenditures and the property taxes that primarily financed them, while the latter may have led to increased support. To the degree that TCJA led to less support for school referenda, it could lead to less spending on education and ultimately, reduced learning.

Previously, Ambrose and Valentin (2024) examined the impact of changes in tax policies associated with TCJA and support for education measured through California bond referenda, finding that TCJA had large effects on support for public education. We revisit the question, examining bond and operating expense referenda with a larger set of states: Colorado, Ohio, Michigan, Texas, Washington, and Wisconsin. For the analysis, we employ two-way fixed effects and event study regressions using the combination of demographic information from the American Community Survey, tax information from IRS zip code level aggregated to school districts, and referendum data from six states to examine the impact TCJA had on voter support for local school district referenda. In the analysis, we exploit variation across school districts in the share of potential voters who no longer itemize and their average tax rates.

Across our analyses, including a number of sensitivity analyses, we are unable to reject the null that TCJA did not change support for school funding, and our confidence intervals rule out a sizable response. We then explore possible explanations to bridge the gap in findings between Ambrose and Valentin and our analysis, including a reanalysis of California data. Much of the difference is explained by the reasonable choices Ambrose and Valentin made to maximize power to detect an effect in examining one state. Because we have the benefit of analyzing a larger set of states with a much larger sample size, we can employ a wider array of specifications and data restrictions and ultimately conclude that the large effects found by Ambrose and Valentin are sensitive to data restrictions and model specifications. Overall, we conclude that TCJA did not affect local school district spending through referenda outcomes.

Authors

• William Hoyt, University of Kentucky
  Non-Presenting Co-Author

• Tangchen Liu, University of Kentucky
  Non-Presenting Co-Author

• Caroline Weber, University of Kentucky
  Non-Presenting Co-Author

• Ron W Zimmer, University of Kentucky
  Presenting Author