Michael F. Shaughnessy 
Eastern New Mexico University
Portales, New Mexico

1) Ryan, first of all, could you tell us your exact title and where you work and what you do?

I am Tax Policy Director at Americans for Tax Reform.  I do issue analysis, policy communication, and policy advocacy for ATR.  My issue areas include federal taxes, health care, and investor/shareholder issues.  I am also an Enrolled Agent, a tax expert designated by the IRS. 

2)  Now, I have heard that there is very bad news on the horizon for teachers in terms of taxes. What would you say is the single most important thing that may happen next year?

In January of 2011, the largest tax hike in American history will take effect. 

If current law remains unchanged, anyone who pays taxes will pay more.  The most important tax change is the hike in marginal tax rates. 

The income tax rates will rise from a range of 10 to 35 percent up to a range of 15 to 39.6 percent. 

The capital gains rate will rise from 15 to 20 percent. 

The dividends rate will rise from 15 to 39.6 percent (for most dividends).

3) What can the average teacher do?

The average teacher should be aware that the $250 educator expense adjustment is slated to go away as part of this tax hike. 

There’s not a whole lot that teachers can do if this tax hike goes through.  If higher marginal tax rates are on the horizon, one option might be to take advantage of 403(b) deferrals if they are made available.  These are contributed pre-tax, and the tax benefit goes up if one’s marginal tax rate goes up.

4) Now, some specifics—will teachers be able to continue to write off professional growth and development?

Professional growth and development expenses are deductible as a “miscellaneous itemized deduction.” 

In order to deduct this, you have to be one of the one-third of filers who itemize deductions rather than take the standard deduction.  Then, you have to subtract 2 percent of your adjusted gross income from all miscellaneous itemized deductions.  Whatever is left is deductible, and even this gets cancelled out if you are an alternative minimum taxpayer. 

If you are very high-income (more than $170,000 AGI), your itemized deductions also phase out slowly.

Suffice it to say, these expenses were never easy to deduct, and they’re not getting any easier to.

5) Now, a real biggie—will teachers be able to write off the hundreds of dollars that some of them spend for books?

If these are classroom expenses, it depends if Congress prevents this part of the tax hike from happening.  If it’s for professional development, see above.

6) Now, what about teacher supplies—many teachers buy pencils, paper, rulers, erasers, and smiley faces and reinforcements and M & M’s and the list goes on. What is going to happen in this regard?

 See (5)

7) From your point of view- what should the typical teacher be doing NOW, TODAY in order to  prepare for next April 15 ? ( I am fearful already)

The best thing teachers can do is to participate in the salary deferral 403(b) option if it’s available to them.  Beyond that, keep very good records of your classroom expenses and professional development expenses.  To the extent you can, get your employer to reimburse directly for expenses under an accountable plan.

What have I not asked about?

I would get into the 403(b) angle a bit more.  Teachers can defer up to $16,500 ($21,500 if over age 50) tax-deductibly into these plans.  This is the single biggest tax benefit for teachers, and helps them prepare for a retirement with an uncertain defined-benefit pension future.

9) What about teachers being able to save for their children for college?

There won’t be any changes to 529 plans, since this tax relief was made permanent in the Pension Protection Act of 2006.  However, for parents saving for college in a Coverdell Education Savings Account (ESA, formerly known as an Education IRA), the contribution limit will be cut from $2000 in 2010 to $500 in 2011 as part of this massive tax hike.

10) Any specific issues about a married teacher versus a single teacher?

The marriage penalty is a real problem in the tax code.  Two people can often have a lower combined income tax bill by shacking up than they would if they got married.  Taxes should be neutral as to these type of choices, but it actually punishes marriage.  Under 2010 law, the marriage penalty only becomes an issue for couples making more than a combined $100,000 or so.  But under the 2011 tax hike, it will affect all taxpaying Americans at all levels of income.

11) What should teachers be doing in terms of writing to their Senators, Congressmen and Governors?

This is very simple for teachers: they should write a very brief letter to their Congressmen and their two senators.  It should say the following: “Now is not the time to raise taxes on anyone.  As a teacher, I especially don’t want to see taxes raised on me or my colleagues.  Congress needs to vote to prevent the January 2011 tax hikes from taking effect.  Taxes should not be raised now or into the future.”  Governors are powerless here.

12) Is there any use to writing to the guy in the White House? At 1600 Pennsylvania Ave? In Washington, D.C.???

In a surplus of time, yes.  But the priority is your local Congressman and your two senators.