www.eoionline.org funding education for the long run tax reform in washington state by marilyn...

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Funding Education for the Long Run

Tax Reform in Washington Stateby Marilyn Watkins

Economic Opportunity Institute

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Why we have taxes

“To establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.”- U.S. Constitution

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Why we have taxes

“It is the Paramount duty of the state to make ample provision for the education of all children residing within its borders, without distinction or preference on account of race, color, caste, or sex.” Article IX, Section 1, Washington State Constitution

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State Budget Shortfall

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K-12 State Budget(9,000 more students)

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It’s not just the recession

Washington’s rank in school spending

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Source: U.S. Census Bureau

Washington’s structural deficit

• Our tax base is shrinking

• Our need for public investment is growing

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Washington’s economy has changed - but tax structure hasn’t

www.eoionline.orgSource: Washington Employment Security Department

Washington’s shrinking tax base

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Other states are doing better

Sources of state revenue

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Source: 2007 state tax collection by source, taxadmin.org

Washington has the most regressive taxes

www.eoionline.orgSource: Institute on Taxation and Economic Policy

Percentage of total state personal income collected in state revenue

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Source: Bureau of Economic Analysis and Washington Dept. of Revenue

New definition of Basic Ed

• Adds full day K• Adds preschool for low income kids• Adds 6th period to middle school and high

school• Sets high standards of accountability• Provides no way to pay for enhancements –

and system already underfunded

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We need to invest more in early learning

• State kindergarten teachers say over half of kids enter unprepared

• Only 1/3 of eligible kids get into federal and state Head Start

• Childcare teachers poorly paid, no incentive for training

We need to invest more in higher education

Washington ranks:

• 5th in community college enrollment

• 45th in 4-year enrollment

• 46th in graduate & professional enrollment

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We can’t fund 21st century education system

with an early-20th century tax structure

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Goals• Make our kids and our state more

competitive• Raise $2 billion per biennium for new

education investments (P-16)

Means• Expand tax base to growing areas of the

economy• Make tax system fairer

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Fair Share Tax Proposal

• Add new fair share tax on incomes over $200,000

• Reduce property and business tax

• Raise $2 billion net new revenue per biennium, dedicated to education

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A fair share tax:

Revenue for biennium

Exempt first $200,000 of AGI ($100,000 for individuals)

3% between $200,000 and $499,999

5% over $500,000 7% over $1 million

$3.4 billion

Source: Institute on Taxation and Economic Policy based on 2006 income levels for Washington taxpayers

Reduce other taxes:

Revenue loss for biennium

Reduce state property tax by quarter

($825 million)

Increase B&O credit from $35 to $400/month (exempts gross revenues of $1 million at retail rate)

($522 million)

Total loss ($1,347 million)

Net new revenue $2 billion

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Results for taxpayers

• 4% of Washington households would pay new Fair Share tax

• All households would pay less property tax

• 88% of businesses would be exempt from B&O (now 48%)

• All would benefit from better schools

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Context

• Tax-averse Governor and legislators

• Severe recession

• 1933 Supreme Court ruling

• I-960

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Reform will require citizen activism

• 2010 initiative?

• Court challenge

• Implementation in 2012

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When If Not Now?

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Resources• Economic Opportunity Institute

www.eoionline.org• Senate Ways & Means, www.leg.wa.gov:

– “Citizen’s Guide to the Budget,”

– “Citizen’s Guide to K-12 Finance”

• WA Dept. of Revenue, Tax Structure Study, Comparative state taxes, dor.wa.gov

• Washington Education Association, Education Statistics, www.washingtonea.org

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