TEF Lessons for Members and Citizens Lesson 5

State Taxes: Unfair and Inadequate

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Objective:

Participants will gain an understanding of how their state tax structure is harmful to poor and middle class members of their community, while simultaneously failing to bring in adequate funds for public education. Participants will explore what can be done about this. 5-2

As a group can we agree that we will: 1) Respect and value differences of opinions and varying levels of knowledge 2) Be attentive 5-3

MAKE THE TEF CONNECTION Schools are being When they lack the capacity to deliver those results… Accountability held accountable for results… When tax structures are out of sync with the economy… School Capacity School Funding When funding is inadequate and inequitable… And not everyone is aware.

Economy & Tax Structure Public Support 5-4

Who pays the most state and local taxes in Arizona?

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Who Pays State & Local Taxes?

Middle and low-income families pay a higher portion of their income in state & local taxes than wealthy families.

14% 12% 10% 8% 6% 4% 2% 0% Bottom 20% Second 20% Middle 20% Fourth 20% Top 15% Top 4% Top 1%

5-6 Source: “Who Pays? A Distributional Analysis of the Tax System in All 50 States,” 3rd Edition. Institute on Taxation and Economic Policy, 2009.

3 TAX STRUCTURES

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Progressive tax

= one that takes a larger share of income as the taxpayer’s income rises.

Regressive tax

= one that takes a smaller share of income as the taxpayer’s income rises.

Flat rate tax

= income tax would go up exactly in proportion to income. However, what is often advocated as a flat tax is to tax everyone at the same rate, such as the sales tax, which is actually neither flat nor fair.

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“…[T]he degree to which the… taxation system has tilted toward the rich and away from the middle class in the last ten years is -- is dramatic, and I don't think it's appreciated. And I think it should be addressed.” “There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning ."

Warren Buffett, One of the Wealthiest Men in America NBC Nightly News, October 29, 2007; see http:// www.cnbc.com/id/21553857 / 5-8

Regressive Taxes: A Triple Impact on Public Education

1. Creates more poverty 2. Poverty increases education funding needs 3. Education funding is reduced as a result of the the lower tax revenues of regressive taxes. 5-9

What can be done?

A few simple reforms would transform the state’s ability to raise more funds while simultaneously REDUCING the overall tax liability of many taxpayers. More funds available for education AND lower taxes! 5-10

If we don’t reform, we are stuck with:

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More reliance on local property taxes

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More reliance on user fees (nickel and dimed), and/or sales tax BUDGET CUTS

The way the system is set up, we’ll fall short of necessary funds every few years. Sound familiar?

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The Benefits of Moving from a Regressive to a Progressive Tax Structure:

Everybody pays their fair share instead of taxing the poor and middle class more than the wealthy.

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Provides more funds for investing in education.

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Improved education promotes economic development.

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MAKE THE TEF CONNECTION Schools are being When they lack the capacity to deliver those results… Accountability held accountable for results… When tax structures are out of sync with the economy… School Capacity School Funding When funding is inadequate and inequitable… And not everyone is aware.

Economy & Tax Structure Public Support 5-13

REFLECTION

1. What stands out in your mind from today’s lesson?

2. What does this mean for you? For your students?

3. How might you act on this knowledge or awareness?

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TEF Tools and Resources

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1 TEF Website: http://www.nea.org/tef Publications 2 State-Specific Data Sources

Studies supporting TEF concepts: The Effects of State Public K-12 Expenditures on Income Distribution

States Facing Budget Shortfall – Center for Policy and Budget Priorities (CBPP) reports state fiscal profiles.

K-12 Education in the U.S. Economy Protecting Public Education from Tax Giveaways to Corporations.

School Funding, Taxes and Economic Growth TEF Series

State-by-state tax news and policy analysis provided by the Institute of Economics and Policy Analysis (ITEP). Economic Policy Institute’s (EPI) new report analysis rank states by overall unemployment as well as the change seen since the start of the recession in December 2007.

Why invest in education makes sense:

Enriching Children, Enriching the Nation show state returns in budget, salary, crime reduction by investing in Pre-K thru 12.

Enriching Children, Enriching the Nation Corporate abuse:

Find out how much Wal-Mart is costing your state in subsidy deals, healthcare cost, and property tax appeal appeals.

The Great American Job Scam - corporate tax dodging and the myth of job creation.

Your Tax Dollars At Work…Offshore - foreign outsourcing firms are capturing state government contract.

Combined Reporting, How Does Your State Stack-Up? Institute on Taxation and Economic Policy (ITEP) This reporting requires multi-state corporations to report the income earned by both the parent corporation and all of its subsidiaries and to determine their income tax liabilities on that basis.

No More Secret Candy Store - A grassroots guide into investigating corporate subsidies.

Good Jobs First state-by-state corporate subsidy websites .

3 State affiliates in TEF Action A few examples… This video address from Alabama EA President, John Wright.

Alabama EA sheds light on corporate tax avoidance in Alabama Detroit News , Friday, July 25, 2008 MEA Press Release:

Drop-outs One Too Many

, April. 4, 2008 Honolulu Advertiser , Dec, 2006 Honolulu Advertiser, Feb. 2007 Iowa State EA News Article Kentucky EA Statement .

School Funding Michigan’s Business Tax Incentives : A study commissioned by MEA and NEA to improve the quality of the debate on business tax incentives.

Mississippi EA op-ed piece.

State Affiliate TEF Websites: Colorado , Illinois , Michigan , Mississippi , New Jersey , Oklahoma 5-15

4 Community Organizing

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Business Outreach Sample Political Action Tools

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Corporate Legislation TEF Model Legislation TEF Tools and Resources TEF Website: http://www.nea.org/tef Customizable Tools 5 Other Useful Links NEA Information on establishing a social networking site to use as an organizing tool. Others are: ( http://www.ning.com/ ) and ( http://www.groupsite.com/ ) 6 Introducing a New TEF Interactive Tool http://www.faireconomy.org/tfoc to locate your state’s tax fairness organizing collaborative. These groups are located in 21 states. www.nea.org/tef 5-16

Other Resources 7 On Taxes… 8 On Economic Policies 9 Funding for Schools PBS Now, "Taxing the Poor" Wal-Mart Subsidies Videos (7:48) ( (26.03) Warren Buffett's Tax Rate is Lower than His Secretary's (4:39) TAXES: Warren Buffett - Rich Taxed Too Little, Poor Too Much (5:17) Eye To Eye With Katie Couric: Buffett's Tax Code (CBS News) (1:40) Videos U.S. PIRG on Countdown . Olbermann talks about U.S. PIRG's report "Tax Shell Game.” Access Quality Education: School Funding Litigatio n A National Network of Advocates Involved in Education Finance Litigation, Free Lunch, Corp Welfare, Bill Moyers and David Cay Johnston (9:49) David Cay Johnston - A History of Government Subsidies (3:08) Abbott vs. Burke is the New Jersey Supreme Court ordered a set of education programs and reforms widely recognized to be the most fair and just in the nation.

David Cay Johnston - Are Government Subsidies Unfair?

(4:43) David Cay Johnston - A Moral Argument for Progressive Taxes (3:04) 5-17

“Our lives begin to end the day we become silent about things that matter.” — Martin Luther King, Jr.

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