Which is the best tax system for Education in California?

Educational funding is an important issue that must be understood in other to provide students with adequate and equitable access to education. Funding is derived from several sources; this blog post will attempt to analyze the various sources to determine which is the most reliable and efficient for educational programs in California. Like many other states in the nation, California relies heavily on the tax system to meet the needs of their students. A significant portion of funding comes from the state and local tax boards with approximately 10% supplemental funds from the federal government. According to the California Department of Education website (CDE), public school funding represents the largest program of the state budget with more than 40 percent of the state’s General Fund resources. The 2014–15 state budget reported more than $45 billion in General Fund resources for kindergarten through grade twelve (K–12) education and child development (CDE, 2016). Spending for California public schools is about $76.6 billion when federal funds and other funding sources are added (California Department of Education, 2016).

The principle taxes used to collect funds for educational use are property, income, sales and sumptuary taxes (Brimley, V., Verstegen, D. and Garfield, R., 2012). Since there is a substantial reliance on the tax system, it is critical that this system be examined to ensure that it is sound and sustainable. Some of the essential features one must explore when determining whether a tax system is a sound are fairness, equitability, ease of understanding, and impact on the economic base (Coghlan, 2016). The tax systems to be compared for this blog will be property, income, sales and sumptuary taxes, and the following criteria will be used to measure effectiveness and adequacy: Growth, Stability, Simplicity, Neutrality, and Equity.

In terms of the tax system, growth examines the synchronicity of revenue gained with the economy and the ability for it to be a reliable source of income. Of the four tax sources of income, property tax revenue was the only one, showed sustainability in the growth potential. Historically, property values typically align with the economic state. It is true that Proposition 13 does cap this income potential at 2%, but it continues to be a reliable source of income for the state because it is a consistent source of income. In times of significant economic growth, prices of homes tend to align and be higher which means more tax revenue. Certainly, there has been periods of economic difficulties where home values had fallen. This certainly could also have an adverse effect on the revenue system. Thankfully such periods are anomalies and do not occur a high frequency. At a minimum, there is alignment regarding growth with the property taxes. The other tax revenue sources, income, sales, and sumptuary taxes do not show a sustainable growth potential. With income tax, there is not a strong direct link between employment levels and the contribution to the tax system. There are simply too many variables that make it an undependable system. Sales taxes though consistent does not align with the growth of the economy. Prices of products and services remain fairly constant and only show gradual changes over time. During the last fiscal crisis in the country, there was not a notable change in prices of products and services even though the average consumer was struggling financially. Finally, sumptuary taxes was also found to be an inconsistent source of tax revenue. Gains from this area do not occur in a regular or predictable frequency and therefore, cannot be relied upon to fund any ongoing educational programs.

This criterion measures whether the tax raised can be characterized as stable over time. In my assessment, both the property and sales taxes meet these criteria. The passage of Proposition 13 in 1978 stabilized the taxing formula for homeowners by providing a predictable expectation of tax responsibility. “Before Proposition 13, local agencies independently established their tax rates and the total property tax rate was the composite of the individual rates, with few limitations”(EdSource, n.d.). The property taxation system is calculable and consistent and, therefore, a stable source of educational funding. Sales taxes, similar to property taxes, is also consistent. Taxes for goods and services do not show any deviations. In California, one can expect to pay a predetermined and regressive tax for products. Though not a high source of income for educational programs is a very stable system. Conversely, income and sumptuary taxes were found to be unstable. The reason for the instability is that there is not a consistent flow of this funding resource from these two areas. Income is based on an individual’s ability to retain and maintain employment, and with the many factors which affect this status must be categorized as unstable. Sumptuary tax is even more volatile. There is no guarantee on the amounts that can be collected through this method and the ability to replicate the type of funding is unpredictable and therefore, it is unstable.

The next category to be examined to determine whether a tax system is balanced is the simplicity factor. For this category, one examines whether a tax is simple and inexpensive for taxpayers to pay and for the government to collect. A well-designed tax system must have two features. It should be easy to understand by its payers, and the ability for the government to administer must also be simple (Taylor, 2012). According to Taylor (2012), complex systems are ineffective, time-consuming and hard to monitor.  It was found that all the four sources of taxes met the simplicity factor. There are easily accessible systems in place for governmental agencies to collect these various taxes and for individuals to pay. Though the average citizen cannot quote every tax law, they can understand on a basic the expectations of the laws.

This area was the most compelling. Neutrality measures whether a tax has little or no impact on people’s decisions about how much to buy, sell, and invest. On the surface, one can easily argue that nearly all taxes has an effect on a taxpayer behavior to some degree. The areas that fall beyond the basic natural inclination that occurs before a purchase will be examined. With that baseline in mind, each tax revenue source meets the neutrality criteria for the most part. The one area where there could be a negative impact was with the income tax portion of the top 1% earners. According to an article from Business Insider, 1% of California highest earners pay 40% of the state taxes (Blodget, 2011). This group is subjected to a higher tax burden, with increases with their income. This is an unfair practice. To mitigate the additional tax burdens, individuals in this subset may be forced to make decisions to buy, sell or invest based on its overall effects on their tax burdens thus affecting the neutrality measure. In summary, within the four tax systems, neutrality though observed, may be denied for a small elite group.

The last category to be examined is equity. This measures whether taxpayers of similar incomes pay similar amounts and whether tax liabilities rise with income. Here, it was found that all four sources of tax revenue on the surface showed features of equity. For property taxes, liabilities levied on properties are consistent because they are based on purchase price of a home.  This is no different for taxes collected for sales and sumptuary transactions.  They are consistent across the board.  Income tax rates, on the other hand, though predetermined rates for its payers showed some deviation. With California being a more progressive state, individuals are required to pay more as their income increases. This is not equitable. There is an over-reliance on the top 1% and this can create an unstable system. It is important to consider the fact that this group may have access to more funds and therefore have more mobility. If tax burdens continue to rise, they could easily relocate to other states with more favorable tax laws.  The California economy could potentially plummet should there be an exodus of the wealthy. If tax laws in California are made more regressive with everyone paying a percentage of his or her income, a more equitable and balanced system will be created. This would support an adequate and fair means of financial resources to the California education system.

In conclusion, after examining the four sources of tax income for the state of California, the property tax was found to be the best funding taxation sources for education. It showed all the necessary features such as growth, stability, simplicity, neutrality and equity to create a balanced source of income for schools. The worst funding source was sumptuary taxes. Though it showed features of simplicity, neutrality and equity, it was ultimately found to be unreliable or showed unpredictable in its growth patterns. This can create a grossly unstable system that would not support an adequate and equitable funding source for education.  The education system is indeed a very complex and expensive system to maintain.  Efforts must be made that funding sources are stable and sustainable over time in other to meet the adequacy and equity needs of all students.

Blodget, H. (2011). WHY IS CALIFORNIA BROKE? Because They Tax The Rich… Retrieved from http://www.businessinsider.com/why-is-california-broke-because-they-tax-the-rich-2011-3

Brimley, V., Verstegen, D. and Garfield, R. (2012).  Financing education in a climate of change. Upper Saddle River, New Jersey: Pearson.

California Department of Education (n.d.) Education Budget. Retrieved from http://www.cde.ca.gov/fg/fr/eb/

Coghlan, R. (2016). History of Public School Funding [Powerpoint document]. Retrieved from Lecture Notes Online Web site: https://cui.blackboard.com/webapps/portal/frameset.jsp?tab_tab_group_id=_2_1&url=%2Fwebapps%2Fblackboard%2Fexecute%2Flauncher%3Ftype%3DCourse%26id%3D_26116_1%26url%3D

Taylor, M.. (2012) Understanding California’s Property Taxes. Retrieved from https://cui.blackboard.com/bbcswebdav/pid-721168-dt-content-rid-13419907_1/courses/EDD-705-1-Spring-2016-CRN-31210/week%203%20article%202.pdf

What is Proposition 13? California – EdSource. (n.d.). Retrieved from http://edsource.org/wp-content/uploads/Prop13.pdf


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