Karma is a…Possibility, Explains New Policy Memo

BOULDER, CO (January 24, 2018) – When Republicans in Congress pieced together the new tax law, they included a particularly partisan element, placing a disproportionate tax burden on taxpayers in so-called Blue states—those that voted for Hillary Clinton in the last election. The provision caps the federal deduction for the payment of state and local taxes (called “SALT”) at $10,000, and the 10 states with the most SALT deductions all supported Clinton.

But the leaders in these higher-tax states are turning to a loophole that pro-voucher Republicans themselves perfected over the past couple decades, explains Professor Kevin Welner of the University of Colorado Boulder. In How Voucher Advocates Created a Blue-State Loophole to Trump’s Tax Law, Welner, who directs the National Education Policy Center, tells the story of how these voucher advocates developed and spread a system of dollar-for-dollar tax credits for donations to private voucher-granting organizations, as a way to evade prohibitions in state constitutions against spending public state money on religious schools.

Taxpayers who make these “charitable” donations—which effectively transform tax payments into payments to voucher-granting organizations—can deduct them from their federal taxes, even if they wouldn’t otherwise be allowed to deduct a state tax payment.

Now states that would be harmed by the provision limiting SALT deductions are looking to create similar tax credits for donations to state-created, charitable “public-purpose” funds that support state spending. As with the pro-voucher donations, the tax payment is converted into a federally deductible charitable donation.

“These voucher advocates have done an enormous favor for state legislators and taxpayers in places like California, New York, and New Jersey,” said Welner. “They’ve already crafted these mechanisms and even defended them in court. The states are left with doing little more than a ‘search and replace’ to substitute their state charities for the voucher charities.”

In the new policy memo, Welner considers possible approaches that might be used in these state laws, but the upshot of each approach is the same. “The fiercely pro-voucher Trump Administration is now facing the possibility of a large decrease in expected revenue, and they have voucher advocates to thank,” he concludes.

Find How Voucher Advocates Created a Blue-State Loophole to Trump’s Tax Law, by Kevin Welner, on the web at: http://nepc.colorado.edu/publication/SALT

The National Education Policy Center (NEPC), housed at the University of Colorado Boulder School of Education, produces and disseminates high-quality, peer-reviewed research to inform education policy discussions. Visit us at: https://nepc.colorado.edu