A flawed idea for schools and for taxpayers
The funding of K-12 education is one of the most discussed yet least understood public policy issues facing Wisconsin. Through time governors, legislatures and superintendents of Public Instruction have grappled with issues that spring from the constitutional provision that assigns responsibility for education to state government. When the issue intensifies, policy leaders have sought out the advice of committees of citizens about how the state can best meet its obligation to fund education.
Governor Doyle appointed the most recent group of citizens to examine education funding issues. This past summer the Governor’s Task Force on Education Excellence issued a report that has the potential of significantly reshaping how Wisconsin schools are funded. The Task Force surprised most observers and eschewed the opportunity to consider rewriting the formula used to distribute school aids. Instead, the Task Force focused on moving a greater share of school funding to state-collected taxes. The Task Force settled on a radical set of recommendations to increase the state sales tax and use the proceeds to lower the local school property tax.
The notion of substituting one tax for another is hardly new. As recently as the mid-1990s Wisconsin sought to lower local school property taxes through state-collected revenue. In 1997, the Governor and the Legislature added
$1 billion to school aids, which lowered school property tax levies by 16%. However, the added funding was made possible through a windfall of state revenues resulting from a robust economy. The Task Force is asking the Governor and the Legislature to tackle the issue head-on by voting to raise the sales tax to make the tax swap possible.
A potential sales tax increase is usually rationalized, as it was in the Task Force report, by comparing the sales tax in Wisconsin to other states. The report noted that Wisconsin has the lowest sales tax rate in the upper Midwest. Usually lurking close by is the sense that the sales tax is attractive to some people because it is collected in small, almost invisible, installments rather than the more noticeable annual property tax bill.
However, just below the surface of the seemingly simple tax swap are several important policy issues, none of which were addressed in the Task Force report. These include tax incidence (which taxpayers benefit from the swap and which are injured), the impact on the distribution of school aids (which districts win and which lose), and what will be the ultimate impact on the ability of schools to meet the needs of Wisconsin students.
Frankly, it is easy to oversimplify the impact a higher level of school aids would have. By portraying the swap between property tax and sales tax as a simple one-for-one transaction, the analysis implicitly makes certain assumptions: it assumes that the mix of spending in the state budget will remain static; it assumes that state revenues would be able to continue to support the higher level of school aids into the future. Further, it implies that the reduction in property taxes would be lasting.
This report will more closely examine the key components that will determine whether these assumptions are valid and whether the recommendations of the Task Force will deliver real and lasting property tax relief. This analysis is intended to assist policymakers who might be intrigued by the notion of buying a property tax cut with an increase in another tax.
While this report focuses on the specific Task Force report that is currently before the Governor and the Legislature, the significance of this analysis rests less on the specifics of that particular report and more on its analysis of the impact of significantly increasing state funding of local schools.