2018 Election Day Impacts (Part 1)


Every election is wild, but the 2018 midterm was particularly heated. As the dust settles, a number of folks have asked us how we expect the results to impact parental choice in ACE states. Obviously, that’s a big question. There are always a thousand nuances involved in legislative politics, and we won’t know for certain how the elections will affect policy debates until the new folks officially take office and get to work. That said, we can make some high-level predictions in some areas.

To keep things a little more manageable, we’ll split this analysis into two separate posts: One on federal impacts and one on state legislative impacts in ACE states. We’ll tackle federal impacts today.

As anticipated, Democrats gained control of the U.S. House of Representatives. The party needed 23 seats to flip the chamber. As of this morning, they had gained 31 net seats. Check out this handy informational page from Politico if you want to dive into more detail. The U.S. Senate, however, remained Republican, which sets up an interesting divided-government situation that will force both parties to compromise if they want to move legislation.

From an education perspective, the most notable impact of the House power shift is that Democrats will now control the House Education and Workforce Committee, which is responsible for oversight of federal education policy. The make-up of that committee will also change substantially, as several GOP incumbents lost their re-election bids.

The changing of the guard in the House will also flip control of the House Ways and Means Committee, which is widely considered the single most powerful elected committee in the United States. While that committee typically does not tackle education issues, it does play a critical role in funding and tax conversations that could directly or indirectly impact education policy and programs through the Tax Cuts and Jobs Act. In particular, altering the new limits on local tax deductions (SALT) could impact scholarship tax credit programs across the country.

(NOTE: ACE is currently monitoring the SALT issue, and the associated IRS rulemaking process, very closely. If you’d like to engage in that conversation and connect with your federal elected officials, you can do so using the button below.)

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In practical terms, here is what we can expect at the federal level as it relates to ACE:

  1. Congressional fixes for issues related to the SALT deduction cap are less likely. Under the committee’s new leadership, which will take over in January 2019, legislative action to exempt scholarship-granting organizations from onerous new IRS rules on charitable contribution deductions seems unlikely. It is not impossible that the Republican-held Congress could try to act before then, but that seems unlikely given that is has other priorities before January and has made no such move to date. ACE argued in its official public comment on the rule that Congress is better positioned to handle this largely statutory issue than the IRS itself.
  2. But that doesn’t mean changes won’t be considered. It is not impossible that members of the newly Democratic Ways and Means Committee would advance legislation to heavily modify or even repeal some provisions of the Tax Cuts and Jobs Act in 2019. Given that the IRS proposed rule largely seeks to address workaround schemes in blue states, it is well within the realm of possibilities that we could see the issue of charitable contribution deductions revisited in the House. Whether or not any changes made could survive the Republican Senate is another matter.
  3. A national parental choice policy probably isn’t coming any time soon. Choice supporters should not expect to see much progress on the idea of a national K-12 scholarship program in the near future. In fairness, that was also largely true when Republicans held the House. The good news is that we can and should expect widespread and successful efforts continue in state legislatures across the country.
  4. We could see increased scrutiny and “oversight” of parental choice policies and programs. We’ve seen similar federal efforts before, though these efforts have been led by executive agencies and have come to naught. Whether or not this activity would continue or intensify under a new committee structure is an open question. If it does, it could create interesting dynamics between Congress, the U.S. Department of Education, and state governments.

Thousands Voice Opinions on IRS Proposed Rule

Back in August, the IRS issued a proposed rule on federal charitable contribution deductions under state tax credit programs. For a refresher on this rule and its implications, see our previous post on the topic. For those just tuning in, the short version is that the IRS is considering a regulatory change that would forbid donors from receiving both a state tax credit and a federal charitable contribution deduction for the same gift.

The federal rulemaking process is a complicated one, as you can see below. The process for this rule has been slightly different because of a special agreement reached between the White House Office of Management and Budget and the Department of the Treasury regarding the implementation of the Tax Cuts and Jobs Act.

The public comment period (about halfway down the chart) on the proposed rule officially ended earlier this month. All told, nearly 8,000 individuals and organizations submitted comments on the rule. Unfortunately, many of these comments were submitted by opponents of parental choice in education—opponents who are thrilled at the prospect that the proposed rule could damage longstanding scholarship tax credit programs.

The negative comments tended to follow a template that offered little in the way of practical input. Instead, they thanked the IRS for the “ending of a tax shelter that allows taxpayers to turn a profit when they fund private schools through state tuition tax credit programs.” While there is a valid argument to be made that donors should not be able to “profit” from charitable contributions, these folks fail to mention that the scholarship programs they are targeting serve nearly 300,000 students nationwide.

Opponents were not the only ones who showed up to make their voices heard. Dozens of organizations and hundreds of individuals who support or benefit from scholarship programs submitted their own comments. Many of these comments criticized the IRS for failing to distinguish private charities from government-run workaround entities. Others offered substantive suggestions on how to avoid harming disadvantaged scholarship students as the rule moves forward.

ACE worked with its partner schools and scholarship families in Kansas and Louisiana to submit hundreds of comments asking the agency to consider ways to mitigate negative impacts on scholarship students. ACE also submitted a more detailed comment to the IRS making the following points:

  • Because the problem the IRS is seeking to address were created by federal legislation, allowing Congress to address the issue may be more appropriate (and effective) than a blanket regulatory solution.
  • The IRS should consider a phased implementation that would minimize shocks to existing scholarship programs.
  • If a phased implementation is not possible, the IRS should at the very least delay the rule’s effective date.

The IRS is currently reviewing comments on the rule, and will hear direct testimony on the issue at a Nov. 5 hearing in Washington, D.C.  After that, the agency will begin revising the rule into its final form before another round of review. ACE will continue watching the process closely as the rule moves toward finalization.