THE DEDUCTIBILITY OF STATE AND LOCAL TAXES

WHEREAS, the American Federation of Teachers opposes the elimination or restriction of the deductibility of state and local taxes. Recent efforts to alter the present tax system have included proposals that would include some form of loss of this necessary deduction that assists schools, states, and local governments in raising the necessary revenues to operate. The elimination of this deduction will penalize taxpayers and limit the ability of state and local governments to respond to growing demands for services in the wake of federal cutbacks; and

WHEREAS, public schools in particular will be damaged by the loss of deductibility because the declining share of federal revenues in recent years has left public schools increasingly dependent upon state governments for financing. The engine driving the current education reform movement has been state government. States have increased their share of the school revenue dollar, and for the first time in history are providing a majority of the funding for schools. Restriction of the deductibility of state and local taxes would be an unfair burden to states seeking to improve their education system; and

WHEREAS, the AFT rejects arguments forwarded by proponents of the elimination of deductibility who say that schools will not be damaged because they rely on local property taxes for most of their support. Property taxes have fallen as a proportion of school support, and in many states, limits on raising property taxes will continue to work against further utilization of this tax resource for school financing; and

WHEREAS, to the extent that schools have an over reliance on the property tax, education is disadvantaged by changes in property ownership. Fewer and fewer property owners have a direct interest in public schools. Those with the most interest and the greatest stake in school--young, lower income, or economically disadvantaged families--have less opportunity to increase property taxes for schools. Sales taxes, shared by larger proportions of the population, would be restricted under proposed deductibility changes; and

WHEREAS, we reject the notion that higher education will not be harmed by these proposals. Our colleges and universities are vulnerable to cuts at a time when growth is needed to fuel the economic development of our nation and to provide the necessary teachers for our nation's classrooms. Cuts in eligibility for student loans and assistance have limited the ability of many students to obtain a college education; and

WHEREAS, community colleges have become a major resource for entry-level job training and for the retraining of displaced workers. These institutions help speed the unemployed worker from state dependence to a contributing status in the economy of the state. In addition, higher education is positively related to higher employment. The effect on higher education of limiting deductibility is to rob states of their future economic vitality; and

WHEREAS, the states that stand to suffer the most if sales taxes are no longer deductible are those states least able to absorb losses at this time. These include southern and western states, who have increasingly committed their resources to education improvements. Some states suffering revenue losses due to recent oil price reductions will find it particularly difficult to raise enough revenue to cover costs if deductibility of sales taxes is lost; and

WHEREAS, state government employees and services will be harmed as a result of the realignment of state priorities when revenue services are lost or constrained. State employees who now provide important services would be forced to take a double hit from the massive cutback of federal support and the undercutting of a tax that is crucial to the financing of state government services; and

WHEREAS, loss of deductibility would be bad for business. At a time when a growing business-education partnership is beginning to flourish, states could be forced to consider a variety of alternative taxes, including increased corporate and property taxes. This changing climate for investment, along with pressures on the important systems of higher education mentioned earlier, make business a net loser under the loss of deductibility of state and local taxes:

RESOLVED, that the American Federation of Teachers continue its active role in the fight against any changes in the deductibility of state and local taxes; and

RESOLVED, that the AFT continue to press the Congress for passage of a genuine tax reform bill that reflects the positive steps taken by the House of Representatives and Senate Finance Committee to make our tax code fair to all our citizens.