Chapter 5 taxation issues

Chapter Taxation Issues Education is a State Responsibility Requiring Public Funds (TAXES) • Taxes are a means to • • • • redistribute wealth Shift $$$ from wealthier to poorer communities Promote equity of educational opportunities Spread financial burden over as large a group as possible Prevent poverty, ignorance, & civil unrest Taxes Share Financial Burden of Supporting Education Dispersing education’s tax burden over the entire state allows smaller, remote, or economically disadvantaged localities with little internal capacity to pay for quality education to provide one Taxes for Schools Benefit the Entire State The entire state benefits economically from an educated population:  Higher income tax revenues  Higher discretionary spending  Higher charitable contributions  Lower public assistance costs  Lower incarceration rates Taxes Help Localities If a local economic downturn occurs, the burden can be spread over the entire state; not borne only in a relatively small area For example, if a locality’s largest employer, a textile plant, closes, local children can still receive a strong education Taxes for Education It seems logical, therefore, that all in the state contribute towards education, not just the people in a locality Education Funding Invites Critics In spite of these facts, education funding issues always invite strong advocates and critics with competing agendas Competition for Education Dollars • Taxpayers want • • • • lower taxes Agencies’ agendas Parental choice Tuition tax credits School vouchers Public $$$ Public Scrutiny Most people believe that the correct taxation level is somewhat less than what they currently pay, & the level of service they want is somewhat higher than currently exists The More You Understand About School Finance… The better you can explain to your parents & community WHY they need to support public education with their tax dollars Urgent Need for More Resources  Making AYP for all  The No Child Left Behind (NCLB) legislation with required Adequate Yearly Progress (AYP) goes into full effect in 2014 students will require additional funding for professional development, supplies, remediation for students – especially in poor urban schools Securing More Taxes to Support Public Schools Results include: • Higher student their extra tax dollars’ achievement levels impact with positive • Increased public results in the schools satisfaction with their • Educators must & will be school system held accountable for • Customer friendly results schools for students & the community • Taxpayers must see Diminishing Marginal Utility  Utility means “satisfaction”  Consumers try to maximize their satisfaction when using their income to buy goods & services  Buying ONE unit of a novel & desired item brings HIGH satisfaction  Buying MORE units brings LESS satisfaction Diminishing Marginal Utility, cont  Buying ONE unit of a novel & desired item brings HIGH satisfaction  Buying MORE units brings increasingly LESS satisfaction Utility Diminishing Marginal Utility, cont U5 U4 U3 U2 U1 Quantity Marginal Utility & Taxes  Citizens are proud of the new roads, new schools, & accomplishments of the school district  As taxes rise, however, and consume a larger %age of income, the utility or satisfaction with paying taxes tends to decrease unless citizens see that the cost brings utility for them in some way Marginal Utility & Taxes, cont  People will only be willing to pay taxes for schools as long as they see it has utility for them  It is the job of all educators to make certain that the tax-paying public sees educational utility in a personal way that makes sense to them Indicators of a GOOD Tax • • • • • • • Good taxes have utility & make sense Fairness of the Tax System Everyone pays something Economic Neutrality Adequacy of Yield Administration Costs Convenience of Payment Visibility of Benefit Fairness of the Tax System • A fair tax structure has a greater burden on the rich than on the poor • Virtually all agree that a regressive tax system is unfair “Fairness” is often in the eye of the beholder Everyone Pays Something • • • • • All citizens enjoy the benefits of government Police protect Teachers teach Fire fighters fight fires Soldiers defend Roads transport All citizens contribute something to the common good Economic Neutrality • Ideally, taxes should leave individuals in the same relative position after taxes as before paying taxes • Everyone’s relative position is maintained in spite of taxes • As taxes are diversified through income, property, sales, lottery, sumptuary, & the like, we lessen the non-neutral impact of any one tax Adequacy of Yield • The cost of administering a tax should not exceed the revenue generated by that tax • If a bridge were built and a toll placed on the bridge to pay for the construction, the toll should pay for the bridge & the means of toll collection Administration Costs The cost of administering & collecting the tax should be low  The income tax is collected with much greater efficiency than is the property tax  Your company deducts your income tax & sends it to the proper state authority Minimum personnel are involved  Property taxes, on the other hand, require a much more personnel-intensive collection operation Convenience of Payment A good tax is one that is convenient for the citizen to pay • If the public must stand in line for hours, shuffle from one office to another, & face arrogant, rude government workers, tax utility is lost Visibility of Benefit People need to SEE the obvious value their tax dollars bring YOUR TAX $$$$’s At Work [...]... Finance Issues Understanding school finance vocabulary & concepts is the first step in understanding school finance issues Understanding Tax Terms That Underlie School Funding Issues • Tax Equalization • “Floor of Services” • Property Taxes – Historical View •Tax Categories – –Stock of Wealth –Flow of Production •Capacity & Effort •Equity v Equality Understanding Tax Terms That Underlie School Funding Issues, ... downward, reaching a critical mass that would ultimately restructure our society to a lower standard of living & general well-being, increase deprivation, & foment civil unrest Taxation Supports U.S Freedoms & Lifestyles Taxation perpetuates our democratic government, permits our comfortable lifestyles to continue, & allows all educated individuals – regardless of race, ethnicity, gender, age, or... Issues, cont TAXES ON: Stock of Wealth In Rem Flow of Production In Personam Ad Valorum Ad Valorum Tax Structures: Proportional Regressive Progressive Understanding Tax Terms That Underlie School Funding Issues, cont Tax Revenue Sources: – Property – Income – Sales – Lotteries – Severance – Corporate – Sumptuary Tax Equalization  Tax equalization tends to make the most needed services more affordable ... School Finance Issues Understanding school finance vocabulary & concepts is the first step in understanding school finance issues Understanding Tax Terms That Underlie School Funding Issues • Tax... living & general well-being, increase deprivation, & foment civil unrest Taxation Supports U.S Freedoms & Lifestyles Taxation perpetuates our democratic government, permits our comfortable lifestyles... people in a locality Education Funding Invites Critics In spite of these facts, education funding issues always invite strong advocates and critics with competing agendas Competition for Education