Historically California has used three sources of income to fund education, property taxes, sales tax, and income tax. Prior to the Serrano vs Priest case, property taxes were the primary source of funding for education. This method of funding was problematic in that it created inequity among districts. It is also important to note that after the Serrano case and the passage of Proposition 13, there was a major shift in the funding of education to the State. How does the tax system in California work and is it adequately funding the needs in education?
Equity & Ability to Pay
A good tax system shares the tax burden equitably among its citizens requiring every person and business to contribute to their government (Brimley, Verstegen, & Garfield, 2016). The primary purpose of a taxation system is to shift private funds to the public sector to finance services for the good of all its citizens. In order to be equitable, the amount of tax required per individual needs to be based on that individual’s ability to pay rather than having each person pay an equal amount. The fact remains that people want the services to be provided, but the majority of them do not want to participate in funding them. In 2012, the California Federation of Teachers (CFT) launched an initiative to raise taxes on citizens with an income of at least $1,000,000, while the initiative did not pass as originally intended, it highlights efforts to address equity in the collection of funds and the challenges to organize a campaign of this nature (Balderston & Begin, 2012).
Adequacy of Yield
In order to be practical, any tax that is implemented must generate enough revenue to warrant its implementation. This not only applies to taxes but policies and procedures that are required by the State. For example, for a number of years, the State required all teachers and individuals who work with children to have a TB test every other year. Recently it was determined that the State was spending millions of dollars unnecessarily, so they revised the procedures and requirement. It is important that taxes be applied to productive sources (Brimley, Verstegen, & Garfield, 2016)).
Costs of Collection
Another important factor in determining whether a tax is worthwhile is the cost of administering the tax. Brimley states “To the extent possible, taxes should have relatively low collection and administrative costs for both the government and the individual.” Personal property tax, while potentially lucrative, is not practical because of the costs associated with determining an individual’s personal property. This would also create issues of privacy, since determining an individual’s personal property would require an audit. Property tax on the other hand is very straight forward because property doesn’t move and it can be clearly defined. Sales tax is also one that is easy to collect and administrate.
Impact & Incidence
When developing a tax, it is critical that the tax impacts the person or organization that it is intended for. If not, the incidence of the tax will affect individuals that were not intended. These types of situations can lead to the overtaxing of one group and at the same time, the undertaxing of another group. Property tax is an area where this may occur, a property owner who rents his property may pass an increase on his property tax to his renter rather than paying the increase himself. You would not have this problem with sales tax, because only the individual making the purchase is required to pay the tax of that purchase.
Since taxes fund government programs, it is beneficial to have that revenue based on consistent sources of income. When the source of income is stable you can plan and budget for programs accordingly. When evaluating the three main sources of income for California, none of them are very predictable… property taxes fluctuate with the market, sales tax is affected by the economy and spending power of its citizens, and income tax will fluctuate with employment and the economy as well. Education’s reliance on state revenue can lead to significant problems, if the budget is not signed, or if restrictions are placed on the state by propositions, districts will have no idea what their true funding will be (Dillon, 2009).
Ranking High and Low
When evaluating the different taxes that fund education, it seems that this would fluctuate depending on the economy. It is also affected by what propositions get passed in the state. Prior to Proposition 13, the highest ranked tax would have been property tax. The economy was booming and property values were skyrocketing. Since the passage of Proposition 13, property tax would be ranked low due to the restrictions placed on growth by the proposition. Income would seem to have more potential than sales tax due to the number of wealthy individuals and large companies who live and operate in the state, thought recent tax burdens on corporations have resulted in many companies leaving California for “friendlier tax venues”.
What is best for education?
After examining the different tax revenue streams, the most stable for education would still be property taxes. Property is fixed and while the economy may affect property value, the climate of California continues to be a draw for people from other states. Income tax and sales tax are still also consistent revenue streams for education. There is no perfect solution, but I believe we are on the right track as we make adjustments to the policies that are currently in place to provide education with the funding it needs.
Balderston, B., & Begin, C. (2012). A Campaign’s Demise and Its Lessons Initiative for Millionaires Tax. Against the Current, 27(2), 8–10.
Brimley, V., Verstegen, D. A., & Garfield, R. R. (2016). Financing education in a climate of change. Boston, MA: Pearson Education, Inc.
Dillon, N. (2009). Free Falling. American School Board Journal, 196(4), 18–21.