* Sun-Times on the congressional tax bill…
The shave in rates, and doubling of the standard deduction, and an increase in the child tax credit and some other new breaks may not counterbalance the new $10,000 cap on deductions for state and local taxes. At present, all income and property taxes are deductible. […]
Rep. John Shimkus, R-Ill., who represents the 15th Congressional District in southern Illinois, asked about the state and local tax deduction cap said, “Maybe Illinois should cut their taxes.”
* New York Times on the “one-two punch” to state tax systems…
The first blow would come from expanding 529 college savings accounts, which offer tax advantages to encourage families to save money for college, to cover K-12 expenses, such as private school tuition and home schooling costs.
This amendment by Senator Ted Cruz passed only because of a midnight tiebreaking vote cast by Vice President Mike Pence. Under current law, earnings on contributions to 529 plans are not subject to federal taxes. These investment vehicles work well for college savings because deposits grow tax-free over a long time. Using 529 accounts for elementary or high school tuition, however, substantially shortens that period, making these accounts a minimal boost to school choice.
While this change would have only a small effect on the federal Treasury, it creates outsize impacts on the state income tax bases in the 33 states that instituted state tax deductions and tax credits to encourage 529 college savings. The federal expansion opens these state incentives to an entirely new area of expenditures, allowing private school families to funnel their tuition payments through 529s as a way to avoid state taxes. […]
Illinois, for instance, allows deductions for $20,000 in contributions a year per beneficiary to 529 plans […]
Expanding 529 plans to deliver state deductions to private school families will erode the tax base that funds public schools, affecting high-poverty schools the most. By limiting state and local tax deductions at the same time, Republicans would make it harder for states and cities to raise taxes to make up for those shortfalls.
The piece estimates this could cost New York’s state budget as much as $3 billion a year. It likely won’t be that much, but, yikes. New York has a $10,000 state income tax deduction for 529 contributions and there are 465,000 New York private school students. Illinois has a $20,000 deduction and has 279,432 private school students.
*** UPDATE ***
With a big hat tip to a commenter, the 529 plan apparently got the boot under the Byrd Rule It turns out, only the home-schooling aspect of the 529 plan was dropped. So, carry on…