The scary arithmetic of grand fortune is shrinking our household nest-eggs.
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.
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.
Originally published on OtherWords.org.