« Tuition Tax Credits: Rhetoric and Reality
Joint Education Meeting »

My Take on “J2”

Posted by Tom on September 18th, 2006

Tomorrow the legislature will likely cut our taxes. My response is somewhat mixed.

I’ve listened to senators, representatives, and even the governor sell the plan. They do a bang up job, and each time I walk away being convinced it’s in the best interest of Utah. But when I stop to think it through, I’m not so sure.

Education: talking point or honest intent?

Both sides are using education funding as the primary reason for their position.

On one side are parents, teachers, and those concerned about the immediate well-being of our public education system crying for adequate funding for public education. On the other are legislators, politicians, and the occasional business leader pointing to future economic growth, promising increased revenues will go to education. It is sometimes hard to tell whether it’s a talking point to appease the opposition, or whether they really believe the cut translates to increased education funding.

To his credit, I think the governor honestly and truly believes this cut will benefit education in the long term. Unfortunately, I have less confidence in the motives of others I’ve heard speak on the issue.

Wether it passes or not, education has no guarantee. The future is not as easy to predict as we might like, and the actions of future legislatures are even more difficult to foresee. Besides, were the tax changes not to pass, the legislature could still engage in money shuffling and not put existing growth for educational purposes.

Education funding

When asked whether they favored or opposed the proposed plan, Utahns were split down the middle. (48% favored, 44% opposed, +/- 5% error) When asked whether they favored a cut or using the money to fund education, the response was in support of public school funding. (58% ed funding, 32% tax cut, +/- 5% error) (Deseret News, “Most Utahns would forgo tax cut,” September 17, 2006)

In rather silly rebuttals, some legislators have suggested Utahns against the tax cut could simply overpay on next year’s taxes and have the money go to education. Sorry, but I don’t trust the legislature to not shuffle piles to divert the dollars to other projects.

Utahns are putting their money where their mouth is. A good number of local education bonds and leeways passed during the primary election. We’ll see more on the ballot this November. While the legislature is trimming the income tax, residents are increasing their property taxes at the ballot box to pay for education. Truer than any poll, this should be a sign residents want more spent on public schools.

Reforms

I’m in favor of the rebracketing and inflation indexing. I think that move, just over half of the proposed tax cut, represents sound tax policy, and is socially responsible. It’s the bifurcated system I struggle with.

With a handful of minor exceptions, the flat tax option will be of primary benefit to the wealthiest 5% of Utahns. That’s not much of a reform.

I attempted to sum up this piece of the reform and the arguments for it into a sentence of single-syllable words: If we give tax cuts to the rich, more rich folk will move to our state; more rich folk [paying taxes] means more dough for the state (and more cash for schools).

Feel free to tell me my characterization is inaccurate, but if that’s the debate it sounds like a long shot, and I’m not sure I buy it.

Every journey…

I’ve heard more than once that this is the “first step” in true tax reform. I haven’t heard what the next step is. What is our goal? Before we start the journey we should be comfortable with the destination. If you don’t know where you’re going, any road will do.

My end goal is public education funding in the context of a society with multiple needs (transportation, safety, health care, etc.). I don’t think this road will get us there.

  • Google Bookmarks
  • del.icio.us
  • LinkedIn
  • Digg
  • Facebook
  • Reddit
  • StumbleUpon
  • Twitter

Posted in Education, Utah Politics

2 Responses to “My Take on “J2””

As background information, Utah’s income tax is the most volatile revenue source (compared against sales and property taxes) which funds one of our biggest and most important responsibilities — education. Also, Utah’s top marginal rate of 7% places us near the top 10 in terms of highest tax rates in the nation. Although Utah is very competitive across multiple fronts, our current individual income tax system is not a beneficial selling point.

Two key goals of tax reform are:
1. Provide a more stable, less volatile revenue base for public education
2. Strengthen Utah’s competitive tax position within the region

Implementing a flat tax option which has a lower (top) marginal rate and through which a significant amount of individual income tax revenue will flow is an initial step toward accomplishing those 2 goals (remember that the top 1% of tax filers pay almost 25% of the individual income tax). There is no way to accomplish these goals without some nominal amount of tax cuts initially. Since the economy is strong, now is the time to begin to make this change while simultaneously infusing record increases into public education (12.8% for FY2007, I anticipate that FY2008 will also be significant). I have seen no indication that rebracketing and indexing those brackets will do anything to bring greater stability to individual income tax revenues.

For additional thought, see http://www.dynamicrange.org/2006/08/income_tax_refo.html

Left by John Dougall on September 18th, 2006

Thank you for responding.

I didn’t address volatility, and yes, it’s an important goal. The same objective could be accomplished by not floating down the basic levy while stretching the brackets(providing an increased portion of more stable property tax revenue), or treating a greater portion of ongoing revenues as one-time. Even more drastic approaches might be funding education from sales tax rather than income tax, or directing volatile high-income surpluses to some sort of education investment account. (Don’t construe this list as support or opposition for any of these ideas.) As the saying goes, “There’s more than one way to skin a cat.”

Your motive in providing a more stable funding base for education is both good and valid (and I commend you for it), but it hasn’t been part of the political sales job. I’m not sure other advocates share that goal. Besides, I’m not wholly convinced it will protect public education as you intend. Yes, income tax is volatile, but during down times every program suffers, and in recent lean years the legislature demonstrated its ability to shuffle income tax money by reducing general fund expenditures to higher education.

Utah’s competitive tax position is important, but the graphs I’ve seen only show a partial picture, compare our income tax rates with states that have wildly different approaches to tax policy—some states have no sales tax, others have an extremely high sales tax, some have a very low property tax, other much higher.

Is a single flat tax system our final goal? There was certainly quite a bit of opposition to that idea, as I recall—including from a large religious organization headquartered in the state. That’s a pretty big hurdle to get across.

Also, I haven’t called you on it in previous conversations, but I’m not convinced 12.8% is a truly proper number. I’m not doubting its accuracy, just the context. The number doesn’t account for status quo growth from increased enrollment, and thus doesn’t show the increase relative to the larger student population. A better number to use would be change per-pupil, which is a bit less than 10%, not counting inflation, rising health care costs, etc. Is it odd to you that the take-home salary of many teachers decreased despite the “record” budget?

Left by Tom on September 18th, 2006