Brimley, V., Verstegen, D.A., and Garfield, R. (2012). Financing Education in a Climate of Change, 11th Ed. N.Y.: Pearson, Inc. ISBN: 9780137071364
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Taxation is a system of transferring money from the private sector to the public sector of the economy. The public institutions of the nation are almost completely dependent on this method of obtaining funds for their operation. Taxation is fairer and more dependable for financing education than the previously used rate bills, tuition charges, and student fees. A good tax system should include the following features: (1) There should be co-ordination among all levels of government with little or no duplication of taxes. (2) All citizens should pay some tax. (3) Taxpayers should be left in the same relative financial position with each other after taxes are paid. (4) The tax should bring a reasonable yield, not be merely a nuisance tax. (5) Tax erosion should be minimal, regardless of the benefits government owes to deserving citizens. (6) Tax collection should be simple and convenient for taxpayers and of little cost to the collectors. (7) The tax should be levied on the person or household who pays it the shifting of the tax should be minimized. (8) The payment of the tax should not cause a major change in the economic practice or vocation of the taxpayer.
The property tax is becoming less and less fair as people increasingly invest their surplus monies in other forms of wealth. The unfairness of a property tax is evident in many ways, such as unequal assessment practices, taxation without relationship to net ownership of the property being taxed, unequal tax bases per pupil to be educated in various kinds of school districts, and lack of a direct relationship between the taxes owed and the amount of wealth or income of the person or household being taxed. Taxpayer resistance to property taxes has increased greatly. Circuit breakers were adopted by most states to relieve elderly and low- income people of part of their property tax burden. Legal steps were taken in a number of states to restrict the use of the property tax, and some states passed legislation restricting government expenditures. Personal property taxes are difficult to collect, and their use has proven to be somewhat ineffective.
Income taxes are probably the most equitable of all taxes, but their use at the local level is limited for two major reasons: (1) They are already used to a high degree by the federal government and to a limited degree by most states. (2) It is relatively easy for resisting taxpayers to find loopholes to avoid such taxes. The income tax is probably the fairest of all taxes. In practice, it is less than ideal as a revenue- collecting measure. It is usually a progressive tax and should include personal and corporate income. There is a continual cry for overhaul of the income tax laws.
Sales taxes are effective at the state level but are not readily manageable at the local level, especially in small school districts. Sales taxes are regressive when food items and other necessities are taxed, since low-income families generally spend a higher percentage of their income on necessities than the more affluent do. E-commerce has spurred a sales tax debate.
Potential new taxes include site-value and value-added taxes, which have a history of successful use in some foreign countries. Congress has attempted unsuccessfully to introduce the use of some new kinds of taxes several times in the last few years. Although the concept is very old, lotteries have become popular in some states as a source of revenue for the schools. Since
lotteries generate only a small percentage of total state allocations, school administrators need to be concerned about relying on this source because of the uncertainty of receipts. The debate will continue on whether a lottery is truly a tax. In any case, it is regressive in nature, since many buyers of tickets are among the members of society who can least afford them. The pros and cons will continue to be debated as more states consider the possibilities of instituting lotteries to raise money for state budgets.
Private foundations may be a source of revenue for school districts. However, the collaborative effort of the private and public sectors working for education may have a greater impact than the actual funds raised through foundations. School-business partnerships have continued to increase in numbers, as business and industry leaders have become more concerned with developing a work force that can compete in a global marketplace. The collaborative efforts will require revenues from business and industry and accountability from educators.
Because of the continual increases in funds allocated to public education by most of the states, local control of education is slowly decreasing. This is a source of some concern to many people who view education as a frontier where people at the local level can exercise some degree of authority in decision making in matters that directly affect them. Rural areas of the country no longer have the strong influence on legislation they once enjoyed. On the other hand, urban areas have lost the financial advantage they once had over rural areas. City school districts suffer financially because of higher costs and the need to provide social and welfare services that are minimized in most rural areas.
Although much has been done to decrease the extremely large number of school districts that once existed in the United States, some states still operate far too many small districts. Just as many school districts are too small for efficient operation, many city districts are too large. Most states have been able to provide for the financial needs of small districts and are working toward a satisfactory solution for the municipal overburden of large cities.
Historically, there has been a fervor to maintain local control of education, but greater open debate and controversy regarding the effectiveness and usefulness of local boards have emerged and they are experiencing an eroding of authority. Business and political leaders are developing programs mandating more control over local school districts. Mayors of some large cities have gained control over schools in their jurisdiction and are usurping power from the school board.
Some states have passed legislation requiring districts to expend at least 65 percent of revenue on a defined operating budget and have taken over the supervision of school districts. Accountability requirements, failing schools, mandated legislation, and other factors have diminished the administrative authority of some local school districts and will affect others in the future.
A good tax system has a minimum of tax shifting. The results are often detrimental to local school districts that have limited control over such matters. Court decisions, legislative action, or legal rulings may change the tax structure that can cause a local school district to lose revenue for the instructional program as well as capital outlay and debt service obligations. The process is complex, and local boards of education may have little control over factors that erode their financial base.
Mobility of the population is significant, and people want good schools throughout the nation, but the public may not be willing to pay for them. Recent developments have some local boards looking to private, for- profit companies to operate schools. Critics indicate that this approach will erode local control. The states have always assumed general responsibility for education, but many of them have left the major financial obligation and control with local districts.
The real property tax has been the major source of local funds for education since the early history of the nation. States have recently begun to place
limits on such taxes and, in a few instances, have placed limits on annual expenditure increases for public education. Local nonproperty taxes are not as effective or productive as they appear to be in theory, yet some states are branching to other sources.
Education finance will need to depend on diverse sources of income in the future. A relatively few school districts are still dependent on some other unit of government for approval of some aspect of their financing. The disadvantages of such a relationship far outweigh the advantages. Dependent school districts are much more likely to become involved in local government politics than are independent districts. Certain trends are discernible in local taxation practices. Better property tax administration, continued competition for the tax dollar among various agencies and institutions of government, a continuation of the problems created by municipal over-burden, more state support for education, and continued resistance to taxes are among the most evident.
Short Answer Questions
1. For taxation purposes, property is usually assessed at a fractional part of its sale (market) value. Revenues are determined by applying tax rates against these assessed values. Since states use different percentages of sale value in calculating assessed value, comparisons between states require the determination of sale values and true tax rates.
(assessed value) (tax rate) = (sale value) (true tax rate) (AV) (tr) = (SV) (ttr)
Thus, if property valued at $ 100,000 and assessed at $40,000 has a tax rate (sometimes called apparent tax rate) of 40 mills, it would have a true tax rate of 16 mills.
If the assessed value of a piece of property is 25 percent of its sale value, you know immediately that its true tax rate is what percent of its apparent tax rate?
2. If a piece of property is assessed at $12,675 under a fractional practice of 65 percent, what is the sale value of the property?
3. If a district requires revenue of $1,487,424 and the sale value of all taxable property is $106,000,000 (to be assessed at 60 percent), what will the tax rate be in dollars per $100 of assessed valuation?
4. Mr. Smith has a house assessed at $51,000 (60 percent of sale value). His tax is $3.50 per $100 of AV. Mrs. Jones has a house assessed at $35,550 (45 percent of sale value). Her tax rate is 36.2 mills. From the following information, answer the following:
Who pays the greater tax?
5. How much greater?
6. Using the tax rate and the assessment practices of Mr. Smiths district, how much tax would Mrs. Jones pay?
7. Ms. Brown has a house assessed at $ 55,800 (62 percent of sale value). Her tax rate is $ 3.25 per $ 100 of assessed valuation. Mr. Barnes has a house assessed at $ 42,720 (48 percent of sale value). His tax rate is $ 32.75 per $ 1,000 (AV).
Who pays the greater tax?
8. How much greater?
9. Using the tax rate and the assessment practices of Ms. Brown’s district, how much tax would Mr. Barnes pay?
10. Reducing the number of school districts in a state will generally reduce the difference in ability to support education between the wealthiest district and the poorest district in terms of assessed valuation per pupil to be educated. Construct a problem in a state (real or mythical) and show that this statement is true or false.