Sunday, April 24, 2005

Michigan 'swapped' state for local education taxes. . .and the followup isn't pretty

John Patterson of the Daily Herald has a good story here on a follow-up on Michigan's education funding plan. In 1994, they did the big swap, switching higher state taxes for local property taxes and putting the money into education.

The upside: poor kids got better schools, since the impossible task of generating money from a property-poor area no longer precluded those kids from getting a decent education. There was state money for schools.

The downside: all the states, including Michigan, are broke. That means money for schools has dried up in Michigan, while in Illinois, the local property tax has kept lots of schools in a better position. The property tax never really changes. People might have to move out because they can't afford it, but it is a stable workhorse of a tax. The sales and income tax revenues fluctuate with the economy -- when things are going well, lots of money comes in. When things are not going well, like now, the money stops.

So tying education money to our income and sales tax revenue has a downside, as Michigan shows.

That's why Ralph Martire and proponents of the swap are also calling for higher and broader taxes: a tax on services, not just goods, because services are growing as a relative share of our economy while goods are shrinking, and it doesn' t make sense to tax the shrinking share of the economy and not the growing share as well. And *that* is why conservatives are against the proposal. They don't want higher or broader taxes. At all.

I think our 3% income tax is too low, and our 6.25% state sales tax is too high -- especially when it tops out at 11% (!!!) in Chicago with the County, City, RTA and McPier local sales taxes added on. But the missing piece in education funding is an accountability measure to ensure the money goes to hiring good teachers and buying needed equipment, and not just fattening the pensions of the past.


Cal Skinner said...

John Patterson only missed one relevant point, in my opinion. That is the fact that business will end up paying a lower proportion of the tax bill under labor union-financed Matire's HB 750 plan.

The reason is simple. Business pays close to 50% of the property tax, but only about 12% of the income tax. (I remember when business paid about 21% of the total income tax back in the early 1970's.) Any swap that includes business will mean business wins...big time.

What's going on with the liberals pushing this plan? Isn't it homeowners who are complaining about the property tax burden?

I would be willing to concede the argument that business doesn't pay taxes; ultimate consumers do.

In Illniois' situation, however, those businesses that export goods outside of Illinois--and there are plenty--export part of the property taxes that are included in their mark-ups.

FightforJustice said...

Business groups haven't yet come out for the Martire tax swap, even though Cal is right: The Martire plan would cause a big tax swap -- from business to individuals.

Susan Och said...

Here in Michigan, the idea was that we would raise the sales tax and use the increase revenue to fund public school, allowing homeowners to get a break from taxes that were rising along with property values.

Schools would get out of the business of passing millages. Eventually the gap between property value rich and properry value poor districts would close.

But the behind the scenes stuff killed the system. It turns out it is easy for the legislature to give a tax break here and a tax incentive there, a bunch of small breaks that add up to critical holes in the foundation of school funding. Drops in sales tax due to increased internet shopping and the ongoing economic slump are added burdens.

The result is a flawed school funding system that has, in only seven years, gone from sixth in the nation to sixteenth in per pupil school spending.

I went to a presentation by the Northern Michigan Schools Legislative Association. I was shocked to hear their prediction that most public schools in this state will be in financial trouble if the system is not fixed.

They have posted information at