Teaching is Taxing: Why Congress Should Expand the Educator Expense Deduction
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In December of 2017, President Donald Trump signed into law the Tax Cuts and Jobs Act (TCJA) which generally went into effect on January 1, 2018. The TCJA, which has come to be known by some as the “largest tax overhaul in three decades,” has reformed many aspects of the individual federal income tax. Some of the more prominent changes include increasing the Child Tax Credit from $1,000 to $2,000, nearly doubling the standard deduction, and restructuring individual marginal tax brackets. In essence, the TCJA has effectively reduced the average tax bill for the majority of individual taxpayers across every income group. Despite some of its more positive changes, not all individuals received the relief they expected. In fact, what concerned many about the TCJA involved not what it changed about the tax code with respect to individuals, but rather, what it left unchanged—the Educator Expense Deduction.
The Educator Expense Deduction, initially introduced in 2002 by Republican Senator Susan Collins and made permanent in 2016, allows teachers, teacher’s aides, principals, and counselors to take an above-the-line deduction for books and supplies that they purchase for their students if they work at least 900 hours per year. As it stands today, Section 62(a)(2)(d) of the Internal Revenue Code (IRC)—known informally as the Educator Expense Deduction—allows educators to deduct from their federal income up to $250 of eligible expenses. In order to qualify, such expenses must be paid or incurred by an eligible educator by reason of (i) “participation . . . in professional development courses related to the curriculum in which the educator provides instruction or to the students for which the educator provides instruction”, and (ii) “in connection with books, supplies . . . computer equipment . . . and other equipment, and supplementary materials used by the eligible educator in the classroom.” In other words, the Internal Revenue Service will not count as income, and therefore not tax, up to $250 of qualifying educator-related expenses. According to Senator Collins, the Educator Expense Deduction “is a small token of appreciation for teachers who make financial sacrifices to benefit their students.”
In 2017, a House tax bill sought to eliminate the Educator Expense Deduction altogether, while its Senate counter-bill sought to double the deduction from $250 to $500. According to Randi Weingarten, president of the American Federation of Teachers, such House bill “show[ed] President Trump and [the] G.O.P.’s clear commitment to the rich and powerful at the expense of children, educators, and families.” In response, House Republicans claimed that teachers, along with all other middle-class Americans, stood to gain far more from the overhaul of the tax bill than they stood to lose from the elimination of a relatively small deductibility provision. In defense of the deduction’s removal, for example, House Republican Kristi Noem from South Dakota argued that teachers in her state, based on their then-average salary, stood to save $37.50 on average from the educator deduction but “would save more than $1,000 from the other benefits of the tax bill.”
While this “don’t step over a dollar to pick up a dime” logic makes sense pragmatically, it seems to ignore a larger issue at hand: if House Republicans had succeeded in eliminating the Educator Expense Deduction in pursuit of tax reform, teachers would have benefited substantially less from the TCJA than similarly situated earners. Under their proposal, non-educators would have enjoyed X (the individual savings from the TCJA), while similarly earning educators could only have enjoyed X–Y (the eliminated savings from the educator deduction). In other words, whatever individually filing non-educators stood to save on their taxes vis-à-vis the TCJA, ceteris paribus, similarly situated teachers stood to save less than that amount. After all, why must teachers choose between comprehensive tax reform and an educator tax deduction? Such a solution would only have defeated the purpose of the provision in the first place—a targeted thank you to professionals who sacrifice day in and day out for what can often otherwise feel like a thankless profession.
Although many considered the TCJA’s preservation of the deduction alone reason to celebrate, the unfortunate reality is that the $250 allowance cap inadequately accounts for the out-of-pocket expenses incurred by most teachers in the profession. A study by the National Center for Education Statistics, which surveyed tens of thousands of teachers across America, revealed that the average educator throughout the 2014–2015 academic year paid $479 in out-of-pocket expenses on their classrooms—an amount nearly doubles the expense deductibility allowance in Section 62. A similar, more recent study conducted by SheerID and Agile Education Marketing surveying 674 educators reported that the average educator spent an average $468 out-of-pocket on classroom supplies and equipment in 2017. Roughly 7% of educators reported spending more than $1,000 for their students annually, and some teachers reportedly spending up to $5,000 in just one academic year.
Such clear manifestations of underfunding correlate strongly with high teacher turnover rates. According to the Learning Policy Institute, 8% of teachers leave the profession every year in the United States. That is roughly double the teacher attrition rates found among the world’s most highly regarded educational systems such as Canada, Finland, and Singapore, which sit around 3–4%. The most prominent reason teachers cited for leaving was overall dissatisfaction with the profession. Such dissatisfaction, they claimed, stemmed partly from “the lack of opportunities to advance, the meagre administrative support, [and] the working conditions.” Even though the Learning Policy Institute purports that teachers’ problems are about much more than just money, they nonetheless acknowledge that “higher pay and more generous benefits” could significantly curtail the “teacher-turnover crisis.” In addition to boosting morale, expanding the Educator Expense Deduction could help reduce turnover by putting money back into teachers’ pockets.
Moreover, the lack of financial support for teachers is more likely to contribute to the increasing achievement gap between high and low socioeconomic status communities. In The Teacher and Principal School Report, a national survey of over 4,700 educators conducted by Scholastic, found that even though all teachers report spending their own money on classroom supplies, teachers in high-poverty schools reported spending 40% more on average than teachers in low-poverty schools. The Economic Policy Institute confirmed such reports, finding that in the 2015–2016 school year, teachers in high-poverty areas spent on average $523 out-of-pocket compared to only $481 for teachers in low-poverty areas; this problem could be partially addressed through an increased Educator Expense Deduction. Because teachers in high-poverty areas spend more out-of-pocket on average than do teachers in low-poverty areas, they will likely have more qualified expenses to deduct under an increased Educator Expense Deduction. This partial reimbursement, while small, stands to benefit teachers in high-poverty areas more than those in low-poverty areas because they will be able to deduct, and therefore be reimbursed on, a greater number of expenditures than would their similarly earning, low-poverty area counterparts. This is true as long as teachers in high-poverty areas continue to outspend their low-poverty area counterparts, and at least until spending by both groups surpasses the deduction allowance.
Fortunately, Congress reached a compromise in 2017 that left the Educator Expense Deduction unchanged. However, many teacher advocates and lawmakers alike believe the mere $250 deduction is not enough. Earlier this year, Congress revisited the issue of the Educator Expense Deduction; except this time, the bill originated in the House of Representatives. In January of this year, Representative Anthony G. Brown, a Democrat from Maryland, spearheaded along with thirty-five co-sponsors, a proposal to increase Section 62’s deduction allowance. Known formally as the Educators Expense Deduction Modernization Act, this bill seeks not only to increase the existing Educator Expense Deduction from $250 to $500 but also to index the increase to inflation. In response to tight classroom budgets, limited education resources, and low pay, Representative Brown hopes that increasing the deduction will “acknowledge[] the importance of [educators’] work” and is an expression of appropriate gratitude for the “counselors, principals, and teachers who make financial sacrifices to benefit their students.”
Like any proposed spending legislation however, a bill to increase the Educator Expense Deduction all but guarantees the possibility of partisan opposition. In 2015, The Joint Committee on Taxation (JCT) estimated that adopting the then-House proposal to repeal the deduction altogether would have increased tax revenue by $2.1 billion between 2018 and 2027. In contrast, the then-Senate proposal doubling the deduction would likely have decreased tax revenues by $1.5 billion over the same ten-year budget window. However, the proposed change to the tax code would have occurred under far less cost than proposals accepted by House legislators. For example, in passing the TCJA, Congress reduced the corporate tax rate from 35% to 21%. Together with the repeal of the corporate alternative minimum tax, the corporate tax rate reduction carried a projected $1.5 trillion ten-year cost in lost revenue. Additionally, the TCJA provided a 20% deduction to pass-through businesses, a deduction which decreased the maximum effective marginal tax rate on qualified pass-through business income from 37% to 29.6%. The Institute on Taxation and Economic Policy predicts that this deduction, along with other changes to the taxation of pass-through businesses, will cost $46 billion in lost tax revenue in 2020 alone—$31 billion of which is projected to flow to the wealthiest 1%. This suggests that Congress’ reluctance to initially expand the Educator Expense Deduction in 2017 was more an issue of willingness than ability.
In addition to financial concerns, some House Republicans worried about the inequitable effect that increasing educator tax relief would have on teachers nationwide. Unlike a tax credit, which would deduct from the total tax bill a dollar-for-dollar amount, an eligible deduction would instead deduct earnings from income which is subject to tax. This results because deductions lower at the outset the amount of money which is subject to tax, whereas credits reduce the total amount tax liability after the total tax bill is calculated. House Republicans argue that because educator tax relief is in the form of a deduction rather than a credit, teachers in higher marginal tax brackets (high-income teachers) would benefit substantially more from an increased tax deduction than would teachers in lower marginal tax brackets (low/moderate-income teachers). However, no matter how unevenly this tax proposal might land among educators nationwide, inequitable relief is still better than no relief at all. Furthermore, legislation proposing to increase an already existing deduction, no matter how inequitable, is likely to pass more easily in both houses than a novel, educator tax credit bill.
Albeit a step in the right direction, doubling the Educator Expense Deduction is but a minor gesture in the grand scheme of education reform. Depending on a teacher’s tax bracket, the possible improvements for teachers from doubling the deduction would range between $25 (the lower bound) and $92.50 (the upper bound). Given that the average salary for public-school teachers nationwide was $60,483 for the 2017–2018 academic year, the vast majority of teachers are likely in the 22% individual tax bracket. This means that an increased $250 deduction would annually return roughly $55 to the average teacher’s pocket. Although small, the benefit of these savings is much appreciated. For some teachers, such as Ms. Uffelman Brake—who is also a new mother—“that’s formula” or “a doctor’s appointment co-pay[.]”
While it is not yet clear how significantly such a tax break will improve the quality of the teaching profession, or the US education system more broadly, what is clear is this: teachers are paying for their own supplies, and they are paying more than twice the amount the Internal Revenue Code recognizes. Be that as it may, more serious conversations about federal teacher support are emerging—and not just in the form of expense deductions. Very recently, in fact, Presidential candidate and Senator Cory Booker introduced legislation to increase teacher compensation with a focus on high-poverty area teachers. Known as the Respect, Advancement, and Increasing Support for Educators (RAISE) Act, this bill aims to: (1) “[c]reate a refundable $10,000 tax credit for public elementary and secondary teachers in high poverty public schools”; (2) “[c]reate a refundable $10,000 tax credit for early childhood educators with a bachelor’s degree and an $8,000 credit for those with an associate’s degree in high poverty early childhood centers”; (3) “[p]rovide all teachers, regardless of the level of poverty in the school . . . with a $500 refundable tax credit”; and (4) increase the Educator Expense Deduction “from $250 to $500 and as much as $1,500 for educators in the highest need schools.”
Even though the Congressional Budget Office has not yet received a cost estimate for the RAISE Act, the proposal would undoubtedly cost exponentially more than, and likely face stronger partisan opposition than, a basic deduction expansion proposal. Whether you support restructuring federal teacher support through the RAISE Act, or simply expanding educators’ deductibility allowance through the more modest Educators Expense Deduction Modernization Act—on this we can all agree: as long as teachers continue to go unreimbursed for spending their own money on their students—an amount that several reputable sources have independently and conclusively determined is roughly double the amount the IRC recognizes—then such spending should at least be tax free. Furthermore, increasing the Educator Expense Deduction will help ensure that all students have a chance at a quality education by alleviating, through federal tax policy, the financial burden teachers bear. Recognizing educators’ sacrifices through increased, national tax relief has the potential to reduce teacher attrition, narrow the achievement gap, and restore some faith in the US education system, all at a fairly reasonable cost. This national “signal of respect” is affordable, sustainable, and, frankly, long overdue.
Readers interested in voicing support for the Educators Expense Deduction Modernization Act or the RAISE Act should contact their members of congress whose contact information can be found by clicking here. Additionally, tax-deductible contributions can be made to nonprofit organizations such as AdoptAClassroom and DonorsChoose that provide a platform to fund teacher initiatives through private charity.
Michael Mirabella is a second-year law student at Cornell Law School. Originally from Florida, Michael earned his Bachelor of Science degree in Finance from Florida State University and enjoys writing on developments in federal taxation law.
Suggested Citation: Michael Mirabella, Teaching is Taxing: Why Congress Should Expand the Educator Expense Deduction, Cornell J.L. & Pub. Pol’y, The Issue Spotter, (Sept. 29, 2019), https://live-journal-of-law-and-public-policy.pantheonsite.io/teaching-is-taxing-why-congress-should-expand-the-educator-expense-deduction/.