Transcript Funding Education for the Long Run

Funding Education
for the Long Run
Tax Reform in Washington State
by Marilyn Watkins
Economic Opportunity Institute
www.eoionline.org
www.eoionline.org
Why we have taxes
“To establish justice,
insure domestic
tranquility, provide for
the common defense,
promote the general
welfare, and secure
the blessings of liberty
to ourselves and our
posterity.”
- U.S. Constitution
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Why we have taxes
“It is the Paramount
duty of the state to
make ample provision
for the education of all
children residing within
its borders, without
distinction or preference
on account of race,
color, caste, or sex.”
Article IX, Section 1, Washington
State Constitution
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State Budget Shortfall
$40
$35
$1.2
$30
$2.1
$5.9
$1.1
$25
Maintenance
spending shortfall
$20
Other resources
$15
$30.3
$30.3
2007-09
2009-11
$10
$5
$0
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Revenue forecast
K-12 State Budget
(9,000 more students)
$20
$18
1.8
$16
in billions
$14
1.54
2.34
other cuts
$12
Student Achievement cuts
$10
compensation cuts
$8
$6
13.6
13.3
2007-09
2009-11
$4
$2
$0
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federal
state funds
It’s not just the recession
Washington’s rank in school spending
17
24
22
34
37
46
1991-92 1997-98 2005-06
1991-92 1997-98 2005-06
per $1,000 personal income
Source: U.S. Census Bureau
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per pupil
Washington’s structural deficit
• Our tax base is shrinking
• Our need for public investment
is growing
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Washington’s economy has
changed - but tax structure hasn’t
finance & information
1947
construction
2008
other services
agriculture
government
trade
manufacturing
0%
10%
20%
percentage of jobs
Source: Washington Employment Security Department
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30%
40%
Washington’s shrinking tax base
Public
Real Utility
Estate 2.5%
5.4%
61%
sales subject to sales tax
Other
6.9%
45%
Property
10%
B&O
18.6%
Sales
56.5%
2007-09 General
Fund Revenues
1990
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2003
Other states are doing better
Sources of state revenue
60%
50%
40%
30%
20%
10%
0%
general sales selective
sales
income
Washington
business
US average
Source: 2007 state tax collection by source, taxadmin.org
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property
other
Washington has the most
regressive taxes
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Washington
Delaware
lowest 20%
Idaho
middle 20%
Source: Institute on Taxation and Economic Policy
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California
top 1%
US avg.
Percentage of total state personal
income collected in state revenue
7.4%
1990
7.5%
1995
6.3%
6.3%
6.2%
2000
2005
2008
Source: Bureau of Economic Analysis and Washington Dept. of Revenue
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New definition of Basic Ed
• Adds full day K
• Adds preschool for low income kids
• Adds 6th period to middle school and high
school
• Sets high standards of accountability
• Provides no way to pay for enhancements –
and system already underfunded
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We need to invest more in
early learning
• State kindergarten teachers say over half of
kids enter unprepared
• Only 1/3 of eligible kids get
into federal and state Head Start
• Childcare teachers poorly paid,
no incentive for training
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We need to invest more in
higher education
Washington ranks:
th
• 5 in community college enrollment
• 45th in 4-year
enrollment
• 46th in graduate &
professional
enrollment
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We can’t fund 21st century
education system
with an early-20th century tax
structure
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Goals
• Make our kids and our state more
competitive
• Raise $2 billion per biennium for new
education investments (P-16)
Means
• Expand tax base to growing areas of the
economy
• Make tax system fairer
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Fair Share Tax Proposal
• Add new fair share tax on incomes over
$200,000
• Reduce property and business tax
• Raise $2 billion net new revenue per
biennium, dedicated to education
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A fair share tax:
Revenue for
biennium
 Exempt first $200,000 of AGI
($100,000 for individuals)
 3% between $200,000 and
$499,999
 5% over $500,000
 7% over $1 million
$3.4 billion
Source: Institute on Taxation and Economic Policy based on 2006 income levels for Washington
taxpayers
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Reduce other taxes:
Reduce state property tax by quarter
Increase B&O credit from $35 to
$400/month (exempts gross
revenues of $1 million at retail rate)
Total loss
Net new revenue
Revenue loss
for biennium
($825 million)
($522 million)
($1,347 million)
$2 billion
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Results for taxpayers
• 4% of Washington households would pay new
Fair Share tax
• All households would pay less property tax
• 88% of businesses would be exempt from
B&O (now 48%)
• All would benefit from better schools
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Context
• Tax-averse Governor and
legislators
• Severe recession
• 1933 Supreme Court ruling
• I-960
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Reform will require citizen activism
• 2010 initiative?
• Court challenge
• Implementation in 2012
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When If Not Now?
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Resources
• Economic Opportunity Institute
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• Senate Ways & Means, www.leg.wa.gov:
– “Citizen’s Guide to the Budget,”
– “Citizen’s Guide to K-12 Finance”
• WA Dept. of Revenue, Tax Structure Study,
Comparative state taxes, dor.wa.gov
• Washington Education Association, Education
Statistics, www.washingtonea.org
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