How the Fairness of State Tax Codes Affects Public Education

Our guest author is Carl Davis, Research Director at the Institute on Taxation and Economic Policy. He was the project lead on the newest edition of ITEP’s Who Pays? report, which provides the only comprehensive measure of the progressivity, or regressivity, of state tax systems.

The vast majority of state and local tax systems are regressive, or upside-down, with the wealthy paying a far lower share of their income in taxes than low-and middle-income families. That is the topline finding of the latest edition of our flagship Who Pays? report, which measures the impact that state tax systems are having on families at every income level. Its findings go a long way toward explaining why so many states are failing to raise the amount of revenue needed to provide full and robust support for our public schools.

As we explain in the report, states with more progressive tax systems also raise more revenue on average. States with regressive tax codes, on the other hand, typically raise less. The reason for this is simple. High-income families receive a huge share of overall income, so when states choose to tax that huge amount of income at lower rates than what everyone else pays, they’re inevitably going to struggle to raise adequate revenue overall.

The Crucial Role Of State Policy In The Impending School Budget Crisis

Last week, we published a report on the probable implications of the coronavirus pandemic for K-12 education funding. My co-author Bruce Baker and I present a bunch of data on the impact of the 2007-09 "Great Recession" on education funding, as well as outcomes illustrating states' responses to the budget crisis caused by the recession. Using insights from these descriptive analyses, we offer a set of recommendations for minimizing the harm of the coronavirus recession on school budgets. 

I won't go through our findings and recommendations individually; you can download the full report, or read the executive summary. I do want to discuss on one overarching theme of the recommendations, and it's very simple: any truly effective response to the impending budgetary crisis cannot consist solely of a federal assistance package. The way states fund public schools has to change, with a forward-thinking focus on faster recovery from this crisis as well as systems better equipped to handle future crises. Chess rather than checkers.

To be clear, federal funding will be absolutely crucial in smoothing the large decreases in revenue that will occur. Without this federal help, there will likely be cuts to school budgets (and those of other public services) so severe that recovery in many states may be a matter of decades rather than years. Moreover, districts serving larger shares of disadvantaged students will bear a disproportionate amount of the harm. Accordingly, we recommend that federal funds be drawn out in two "phases" over a 5-7 year period, and that states be required to distribute them in a manner that targets assistance to those districts that need it the most. But this won't be enough.

Do Attitudes Toward Taxation Change When Economic Situations Change?: Evidence from Poland

The following is written by Kinga Wysieńska-Di Carlo and Matthew Di Carlo. Wysieńska-Di Carlo is an Assistant Professor of Sociology in the Institute of Philosophy and Sociology at the Polish Academy of Sciences.

In general, people tend to support expanding many of the programs funded by their taxes, but they don’t like paying taxes. In the U.S., for example, most people think the government should spend more on programs such as education, health care and urban renewal, but only a tiny fraction believes their own taxes, especially their federal taxes, are too low.

One of the possible explanations for these seemingly contradictory attitudes might be that people think tax systems should be more progressive – that is, they believe that tax revenue should increase, but that the increase should come from higher tax rates on higher earners. Poland is an interesting example in this context (if for no other reason than the fact that there were no taxes in Poland during the communist period). Today, when asked a generic question about whether the government should play a role in reducing income differences between the rich and the poor, Polish people tend to respond in the affirmative in larger proportions than their counterparts in virtually any other advanced nation. Yet responses to these types of questions can be quite different when they ask about specific issues, such as tax rates (Roberts et al. 1994).

Let’s take a quick look at some very tentative analyses that we (and our colleague Zbigniew Karpiński) have performed on this issue, with a specific focus on the question of whether people’s attitudes toward taxation change as their circumstances (e.g., income, employment) change.

Do Americans Think Government Should Reduce Income Inequality?

With all the recent coverage of Occupy Wall Street and President Obama’s jobs bill, we’ve heard a lot of polling results showing that a large plurality of Americans supports raising taxes on high earners, and that this support is strong among both Democrats and Republicans.

The campaign to raise taxes on high-income households is part of a larger ideological notion that reducing inequality by such means as taxation and welfare programs is a proper function of government. Supporters (e.g., Democrats) argue that progressive taxation helps to ensure that high earners pay their “fair share” in supporting the public resources, such as schools, roads and law enforcement, that are necessary (but not sufficient) for their success. Republicans, on the other hand, tend frame the issue directly in terms of government intrusion – the government is unfairly “picking winners and losers," and stifling innovation and risk-taking. The assumption seems to be that many Americans don't care for the generic idea of government taking an active role in reducing the gap between rich and poor, even though they tend to support many of the specific means by which this occurs, including not only raising taxes on high earners, but also public education and programs like Medicaid.

So, it might be interesting to see what Americans think of the broader idea that government has a legitimate role in reducing income inequality. Let’s take a quick look.

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