Brimley, Verstegen, and Garfield (2016) outline six criteria for evaluating tax systems.
- Equity and Ability-to-Pay: The degree to which the system fairly places the tax burden on taxpayers.
- Adequacy of Yield: The degree to which taxes adequately fund the services they are meant to finance.
- Costs of Collection: The degree to which taxes are efficiently collected, thereby ensuring the highest possible net revenue for the state.
- Impact and Incidence: The degree to which tax shifting is avoided.
- Neutrality: The degree to which the tax rate does or does not affect consumer behavior.
- Predictability: The degree to which the tax revenue is consistent and reliable.
The three most common type of taxes used for education are income tax, sales tax, and property tax. According to Brimley, Verstegen, and Garfield (2016), income taxes are ideal in theory but difficult in practice. Sales tax can be bad on equity because it is often applied to food, which places undue burden on poorer families. It also affects consumer behavior/neutrality and is dependent on good economy.
Real Property tax has been used by local districts to fund schools for a long time. Brimley, Verstegen, and Garfield (2016) argue, however, that it is no longer the most equitable means as it does not represent fiscal capacity like it once did. It is also not sufficiency to fund schools, especially in cities where there are higher number of high-cost students. Real property taxes are not reliable when property tax levels are essentially frozen, as they are in California, and therefore does not increase as the market value of houses increase. Brimley, Verstegen, and Garfield (2016) state that these taxes are considered by many to be the most regressive and inequitable.
Personal property taxes, on stocks, bonds, and mutual funds, are very difficult to collect because of ownership issues. Lotteries, which contributes a small portion to California’s education budget, is also considered by some to be regressive because the poor who pay for it and need it the most pay a bigger amount percentage. Unlike other taxes, though, this could be considered a “voluntary tax” (Brimley, Verstegen, & Garfield, 2016).
California has the fourth highest tax burden for its citizens when local and state taxes are combined. Our sales tax is also one of the highest. 40% of California’s general funds must be spent on K-14 education (Brimley, Verstegen, & Garfield, 2016), and yet depending on how one evaluates state spending, California is ranked 22nd or 40th in the nation of per pupil spending (Fensterwald, 2017). As California takes in more or less income tax and property tax revenue, more or less will be spent on education because of the 40% rule. At least in theory this means the tax system for education in education attempts to secure fiscal neutrality in school finance, where students are education based on the wealth of the state and not the wealth of a student’s family or neighborhood.
Brimley, V., Verstegen, D.A., & Garfield, R.R. (2016). Financing education in a climate of change. Boston: Pearson.
Fensterwald, F. (2017, February 28) How does California rank in per-pupil spending? It all depends. EdSource. Retrieved from https://edsource.org/2017/how-does-california-rank-in-per-pupil-spending-it-all-depends/577405