Tax Sources of School Revenues
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Education in the United States is big business. By 2012, public-education (K–12) revenue was more than $594 billion annually, and elementary and secondary education represented approximately 4.1 percent of the nation’s annual gross domestic product.1 The three major sources of revenue for public schools are local, state, and federal governments, and education consumes a significant portion of the budget for each of these entities. Although the percentages of funds provided by these three sources have changed, the total amount of money available for schools concerns most local school districts. During shifts in economic conditions, the business of schooling is forced to respond to the ups and downs of the changes. In a survey of local school board members, almost 92 percent of respondents identified “budget/funding” as an extremely or very urgent issue for their district.2 This chapter explores the mechanics of education funding and the overall changes in school financing in recent years. Today’s educators must deal with budget fluctuations, equity and adequacy in school financing, accountability, and various plans to restructure the system of financial support.
8-1 Tax Sources of School Revenues Public-school funding relies primarily on revenues generated from taxes, especially local property taxes and state sales and income taxes (Photo 8.1). Policy makers realize that some taxes are considered fairer than others. Most people today accept the following criteria for evaluating taxes:
1. A tax should not cause unintended economic distortions. It should not change
progressive taxes Taxes based on the taxpayer’s ability to pay, for example, income taxes.
regressive taxes Taxes that require lower-income groups to pay relatively more of their income than higher-income groups.
consumer-spending patterns or cause the relocation of business, industry, or people. 2. A tax should be equitable. It should be based on the taxpayer’s ability to pay. Those with greater incomes or with greater property worth should pay more taxes. Taxes of this sort are called progressive taxes. Inequitable taxes and those that require lower-income groups to pay a higher proportion of their income than higherincome groups are called regressive taxes. 3. A tax should be easily collected. Administration by the responsible agency and ability to comply with the requirements by the taxpayer should be simple.3 4. The tax should respond to changing economic conditions, rising during inflation and decreasing in a recession.4 Responsive taxes are elastic; those not responsive are inelastic. As we review the various taxes collected to support public schools, note the impact they have on the spectrum of America’s taxpayers.
8-1a Local Financing for Public Schools Although states are responsible for education, traditionally much of this responsibility has fallen to local school districts. Overview 8.1 summarizes governmental income sources and spending patterns for education at local, state, and federal levels.
1 National Center for Education Statistics, “Table 106.10—Expenditures of Education Institutions Related to Gross Domestic Product, By Level of Institution,” Digest of Education Statistics 2013 at http://nces.ed.gov/programs/digest/d13/tables/dt13_106.10.asp. 2 Frederick M. Hess and Olivia Meeks, School Boards Circa 2010: Governance in the Accountability Era (Alexandria, VA: National School Boards Association, 2010). 3 Allan R. Odden and Lawrence O. Picus, School Finance: A Policy Perspective, 4th ed. (Boston: McGraw-Hill, 2008). 4 James W. Guthrie, Mathew G. Springer, R. Anthony Rolle, and Eric A. Houck, Modern Education Finance and Policy (Boston: Pearson/Allyn and Bacon, 2007).
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