Monday, April 9, 2018

Tax policy that supports education is good for the economy

As a superintendent, I am often asked the question by community leaders about how business can best support public schools.

For a long time, I answered this question by thinking about partnerships, philanthropy, or other programmatic ways businesses and communities can help public schools.  But lately, my answer has tended more toward the policy front.  I tell them the best way to support education is to support a fiscal policy that focuses on investments rather than taxes.

In the Owensboro Independent District, where nearly three out of four students live in poverty, I have seen the ill-effects of the growing inequality and eroding middle class in our society.  Our district has had to do more with less to serve the needs of our students and families. 

That is a concern because the U.S. poverty rate for school age children is higher than any advanced industrial nation in Europe, North America or Asia.  A majority of public school children in 21 states were low income in 2013.   As a region, southern states like Kentucky have the greatest percentage of total student population represented by low-income children.

The achievement gap between children from high and low income families is 30 to 40 percent worse among children born in 2001 than those born 25 years earlier.

Behind this achievement gap is a funding gap that is growing larger in Kentucky.  The equity gap that shrank in Kentucky with the passage of the Kentucky Education Reform Act in 1990 has reversed.  The funding gap between districts in the highest quintile and the lowest quintile, where my district ranks, is nearing pre-KERA levels.   Public education in America, and in Kentucky, is not so much broken as it is under-resourced to educate all children—especially the most disadvantaged.

Even though tax revenue in most states has recovered to above 2008 levels, most states provide less support per pupil for elementary and secondary schools than before the Great Recession. Kentucky is one of only 12 states where funding per student is below the 2008 level.  In fact, the Commonwealth’s 15.8 percent drop ranks third worst in the nation.

Average salaries for public school teachers declined by 1.67 percent in constant dollars, for the decade ending in the 2014-2015 school year, 25 states, including Kentucky, had a drop in real teacher salary over that decade.

The trend seems to be continued underfunding of public K-12 education as a consequence of fiscal policy.   And Kentucky is poised to replicate the unsuccessful model that has devastated education in states like Kansas, Oklahoma, and North Carolina.  The research overwhelmingly shows that this is a destructive approach which actually hurts the state’s economy.

The states which have made the greatest investment in building the capacity of their public-school system to meet the educational needs of all their children, from the poorest on up, have experienced stronger economic growth than states that did not.

Indeed, the high-investing states also had larger increases in worker wages over the same time period, as well as a statistically meaningful advantage in state level GDP growth.

As it turns out, investment in K-12 education, higher education and public infrastructure are the only policy decisions at the state level which have a statistically meaningful correlation to economic outcomes, according to research conducted by the Center for Tax and Budget Accountability.

A rigorous 2012 study commissioned by the U.S. Small Business Administration found
“no evidence of an economically significant effect of state tax portfolios on entrepreneurial activity.” The Truman Institute at the University of Missouri found that when benefit of a tax break is measured against the economic loss generated by spending cuts—there is always a net economic loss.  The Congressional Budget Office found no correlation between tax policy and job creation--private sector demand is what counts.

More recently, several states experimented with tax cuts with little obvious success.  The most notorious case is Kansas, where Governor Sam Brownback promised that a moderate tax cut for individuals and a big tax cut for businesses would stimulate the economy.  They cut top personal income tax rate from 6 percent to 4.5 percent in 2012, projected to reduce revenue by $920 million in FY2017, income tax as share of state revenue fell from 50 percent to 40 percent.

Since the 2012 tax cut, however, Kansas’s economy has lagged behind neighboring states, and the state’s budget has been in tatters. Last year, in the face of poor growth and spending needs, the Republican-led state legislature reversed much of Brownback’s original tax cut. 

Reams of evidence from other states are equally unsupportive of the supply-side notion that tax cuts boost growth.  Minnesota provides an interesting contrast to Kansas.  They raised income taxes in 2013, investing heavily in education.  Where jobs evaporated in Kansas, Minnesota experienced job growth.

 A study by the Center on Budget and Policy Priorities in 2015 found similar results.  Four of the five states that enacted the largest personal income tax cuts in the last few years have had slower job growth since enacting their cuts than the nation as a whole.  Four of the six states that cut personal income taxes significantly in the 2000s have seen their share of national employment decline since enacting cuts.  States with the biggest cuts in the 1990s grew fewer jobs during the next economic cycle compared to states without large cuts.

The fiscal policy being pursued in many state legislatures are damaging public education at the expense of tax breaks benefitting the wealthiest individuals and businesses.  The latest attempt at “tax reform” in Kentucky follows this same model.

Prior to my tenure as superintendent, I served as a local economic development professional that worked closely with business leaders for more than seven years. I recognize the importance of a competitive rate for business.  But corporate profits have grown by 44 percent since the Great Recession, far outpacing hourly earnings and GDP.  The evidence simply does not point to tax policy as the driver of economic growth, especially at the state level.  The evidence points to investments in three areas, K-12 education, higher education, and public infrastructure.

Business leaders know the value of a good investment.  Fiscal policy that supports strong public investments will benefit our economy more in the long run than a tax system that does not raise the revenue needed to move our Commonwealth forward.   It is time to reverse this trend in Kentucky before we go the way of Oklahoma and Kansas.

Nicholas Brake is Superintendent of the Owensboro (KY) Independent School District and member of the national governing board of the American Association of School Superintendents

To read full paper on State Fiscal Policy Supporting Education visit the link. 

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