Funding Educational Adequacy and the Implications for Nebraskas Economy NEA Conference on Funding Qu

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Funding Educational Adequacy and the Implications
for Nebraskas EconomyNEA Conference on
Funding Quality SchoolsRichard G. SimsEconomic
Policy ConsultantWashington, DCrichard_at_sims-inc.
netJuly, 2004
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Since 1990, there has been a trend of shifting
the burden of taxes to lower income taxpayers
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The downward shift in Nebraskas tax burden
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Nebraskas Changing Reliance on Various Revenue
Sources
Property tax share down 6 Sales tax share up
1 Income tax share up 4 Other taxes share up
2 Non-tax revenue down 2
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The long-term revenue elasticities of major
Nebraska taxes
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Considerations regardings some options for
funding Nebraskas education system

• Sales tax
• Individual income tax
• Property tax
• Alternative taxes

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Increased sales taxes comes directly at the
expense of retail sales. Lower sales taxes
provides direct relief to low and middle-income
households who are also those most likely to use
their tax cut to stimulate the economy most.

• The poor have a marginal propensity to spend of
  100.
• Former U.S. Treasury Secretary, Robert Rubin

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• Only thirty-four percent of Nebraskas taxpayers
  paid the top income tax rate on their income.
  The U.S. average was 44 and all but two of the
  higher share states have higher top rate
  thresholds.

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Nebraska can provide adequate funding for its
educational system by any of several combinations
of taxes.However, it can only provide a
permanently adequate education funding system--
by doing it right.How you tax matters.
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• Some myths and realities relating to taxes and
  economic growth

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As a share of profits, corporate state income
taxes have fallen dramatically in recent
yearsWhile the share of individuals income
going to taxes continues to rise.
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Some observations on Nebraskas corporate income
taxes and tax exemptions Exemptions are expensive
and often non-productive
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Some Concerns Regarding the Future Funding of
Quality Education
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States are systematically increasing their
reliance on unreliable and inelastic
taxescigarette taxes, lotteries and other
consumption taxes which do not produce revenue as
fast as the growth in funding needs.
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Why sales taxes do not keep up with a states
economy.
56 of personal income in mid-1970s Now around
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Trends such as the continual shift toward
consumer services and internet purchases are
likely to cause this trend to continue
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Tax changes that make your state tax system less
elastic may require cutting back on future
education funding
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While most of the school-age population is
currently in a dip, Nebraska faces a substantial
up-turn in school demand in the relatively near
future
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What happens to the economy when a state raises
taxes and invests the proceeds in k-12
education?
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Example A 100 million in new education spending
creates more jobs than are lost by an equivalent
amount of taxes
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Spending by state government is a source of
economic growth

• I know of no valid economic theory that suggests
  that tax cuts provide more economic stimulation
  than would a similar amount of government
  spending.
• Former Congressional Budget Office Director,
  Robert Reischauer

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The job market of tomorrow will demand high
thinking skills
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Yesterdays skills were appropriate for a
different time
Nebraska has to prepare its children for the
realities of tomorrows workplace.