December 9, 2017

GOP reform bill will be taxing for teachers, small businesses

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The tax bill being pushed through by the Republican Party threatens the foundations of a vital and healthy economy. By reducing deductions for charitable donations, for teachers’ expenses, and for state and sales taxes, the bill makes it less likely that we will be able to financially support the services and projects that depend on them to succeed.

In the name of capital gain, the tax-reform plan threatens the human-based economy that is the foundation of our thriving, growing communities, cities and neighborhoods. Without the personal contributions and professional incentives to sustain local activity and involvement, society fails to adapt and flourish with the skills necessary to address the problems of the future.

Let’s think of our economy as similar to a brain, with many moving parts. How do we successfully prepare that well-rounded economy for the people who will be entering into it?

The aptly named “whole brain teaching” approach to education is now taught in many schools across the country. The aim is to impart knowledge through various modes of learning that tap different parts of the brain.

With that in mind, let’s take a look at some of the key elements that might make up a healthy “whole-brained” economy. First and foremost, on a local level, both individuals and businesses need to support every citizen in their success, from the time they are in school all the way through to retirement. There are many factors that should be involved in that support system, and they are crucial to economic growth and a thriving local economy.

“Educational outcomes strongly affect economic growth and the distribution of income,” wrote George P. Shultz for the Wall Street Journal in April 2012. “In addressing our current fiscal and economic woes, too often we neglect a key ingredient of our nation’s economic future — the human capital produced by our K-12 school system. An improved education system would lead to a dramatically different future for the U.S.”

The proposed Republican tax bill is potentially detrimental to many of the individuals and businesses that form thriving, growing communities. By eliminating the teacher deductions for $250 in teacher supplies and instructional materials, the bill ignores the needs of both educators and students.

“Each year, I spend anywhere from $1,200-$1,500 on supplies such as paper, pencils, crayons, markers, highlighters, pencil boxes, cubbies for the students, and even occasionally tables, curriculum materials, and more,” wrote an anonymous elementary school educator from the Worcester Public Schools. This kind of expense is standard, not only in the urban school systems, but across the country. The teacher goes on to note: “Not to mention the clothes — underwear, socks — no one can learn in wet pants or socks!”

Educator LeAnn Keck said in an article recently published through Edutopia, “Being a teacher is a stressful enough job, but teachers are now responsible for a lot more things than just providing education.

Tina Zlody, program and events coordinator for the Visual and Performing Arts Department at Clark University, wrote, “Teaching has changed so much over the last decade, it’s not just a classroom job. Teachers now take on parenting roles, and deal with major life issues and changes of their students with little help.”

The more strained our educators are, the more tools we need to provide them to handle the different facets of their important job. “The idea that [Republican legislators] want to take away the $250 deduction that educators are allowed is outrageous! We need to support our teachers; not take away any small incentive they might get in the form of a reasonable tax deduction,” Zlody said.

In addition to eliminating the deduction for teachers, Education Week recently reported that the Republican tax bill will eliminate the federal tax deduction for state income tax and sales tax. The response by state officials could be to reduce state income and sales taxes, which in turn could significantly impact state and local funding for public education.

Small businesses also make our cities well-rounded, and are being threatened by the proposed bill as well. Almost all small businesses are known as “pass-through entities,” which are small S-corporations, LLCs, partnerships and sole proprietorships. These companies generally employ the vast majority of people in our local communities; and spend a much higher percentage of their earnings on local taxes, charitable contributions, local property taxes, and fees compared to bigger C-corporations such as ExxonMobil.

The smaller entities don’t make nearly as much money as the conglomerates, and therefore are less able to spread risk and potential losses. Currently, small businesses are able to deduct enough from their local taxes against their federal tax obligation to support their employees, their employees’ benefits, business expansion costs, and their own retirements.

In the proposed bill, those taxes for small businesses will increase so much that it will become almost impossible for many of them to operate with a large-enough revenue margin to survive. In addition, entrepreneurs who are looking to start their own business will have much less incentive to do so, and the large businesses will continue to be able to deduct local taxes — and get an even lower tax rate.

Small businesses are essential to the growth of a healthy economy. In “The Risk, Entrepreneurship, and Human-Capital Accumulation,” authors Murat F. Iyigun and Ann L. Owen state that “an economy’s human-capital stock is determined by both entrepreneurs and professionals. Entrepreneurs provide the economy with new ideas, products, and ways of doing things.” (A preview of the paper is available here.)

Many small-business owners provide jobs for those who might not otherwise have the opportunity to work. These owners often support local sports leagues, libraries and charity events. They frequently provide ladders of opportunity for members of the local community. In the franchise business, for example, a cashier can be hired out of school and work a minimum-wage job, eventually move up the ranks, and be paid while learning to become a business owner themselves.

Describing how the proposed bill could hurt his family’s local franchises, and that of other area franchise owners, Robert Branca, founder and chairman of the Dunkin’ Donuts Independent Franchise Owners PAC, said “it has to do with losing the ability to deduct state and local taxes.” The additional tax burden imposed by the proposed tax law will inhibit the franchise owners’ ability to make improvements to existing buildings, while leaving room for growth, he said.

“The original versions of the bill heavily favored large subchapter C corporations, to the disadvantage of small companies. Most businesses that are in Worcester are of the small business or pass-through entity variety, and we employ the lion’s share of our neighbors,” Branca said. “Fortunately, we have been able to successfully provide evidence of this to Congress, and there’s been movement to address this concern.”

In order to make sure that all of our cities and towns thrive, our legislators need to understand how the different factors that make up a strong local community of diverse, motivated and healthy people result in an economy that fully supports those people. Capital gain and human-based economic development are not mutually exclusive.

If these elements are considered as a reciprocal partnership — just as we have learned to consider a child’s “whole brain” as individual parts that only successfully grow when fostered simultaneously — we can develop self-sustaining and capital-generating communities.

Laura Marotta is a former Worcester Public Schools art teacher turned executive director and co-founder of Creative Hub Worcester.

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