CHAPTER 5: SPECIFIC TAX REFORMS

185 13

P U T T I N G C H I L D R E N F I R S T: W E I G H T E D Figure 5.5: South Carolina income tax: Current tax rates compared to STUDENT FUNDING IN inflation-indexed rates, 2009 SOUTH CAROLINA
Income Tax Rates/Brackets if 1959 Tax Current Income Tax Schedule was Inflation Adjusted to by Jameson Taylor Rates/Brackets 2009 Taxable Income $5,000 $10,000 $15,000 $20,000 $30,000 $50,000 $75,000 $100,000 $150,000 $200,000 Tax Amount $71 $290 $604 $954 $1,654 $3,054 $4,804 $6,554 $10,054 $13,554 Average Tax Rate 1.42% 2.90% 4.03% 4.77% 5.51% 6.10% 6.41% 6.56% 6.70% 6.77% Tax Amount $125 $250 $377 $527 $834 $1,695 $3,127 $4,877 $8,377 $11,877 Average Tax Rate 2.5% 2.5% 2.51% 2.63% 2.78% 3.39% 4.17% 4.88% 5.58% 5.94%

Presumably the original intent of imposing a tax rate schedule with graduated marginal tax rates was to make the income tax progressive. However, what progressivity exists in the state’s income tax structure is due to the zero tax on the first $2,630 of income, and because of the graduated marginal tax rates. However, since the marginal tax rate increases over such small steps in income, as shown in Figure 5.5, most of the progressivity occurs at lower income levels, not higher levels of income. At higher income levels, the average tax rate hardly increases at all. This nature of the current tax is directly contradictory to the goal of progressivity. So although on the surface it appears that the tax satisfies the CHAPTER 10 vertical equity condition, it really does this only at the lower income levels reducing the wealth of these lowest income taxpayers, not the intended consequence.

Figure 5.5 also shows what the average tax rates are for various incomes and taxes under the current tax system in South Carolina. In the right columns it also shows what the taxes and average tax rates would be if the 1959 tax tables were indexed for inflation. The figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income individuals in the state. Figure 5.5 also shows that the current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the table. As South Carolina income taxes continue to climb while the tax brackets remain stagnant, the state becomes a relatively high-tax state. This has a negative impact on

186 18 18

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

manufacturing property tax inin the country. In Figure 5.8 we present the effective property tax manufacturing property tax the country. In Figure 5.8 we present the effective property tax rates data for Southeastern states, for comparison. The ranks given for the states are out of all rates data for Southeastern states, for comparison. The ranks given for the states are out of all 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on property valued atat $25 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on property valued $25 million ($12.5 million ininmachinery and equipment, $12.5 million inininventories, and $2.5 million ($12.5 million machinery and equipment, $12.5 million inventories, and $2.5 million inin fixtures). Notice that South Carolina’s effective tax rate on industrial property is million fixtures). Notice that South Carolina’s effective tax rate on industrial property is over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware isis listed in over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware listed in the figure because it it is the lowest-tax state.) the figure because is the lowest-tax state.)

Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007 Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007
State Rank (of 50) State Rank (of 50) South Carolina 11 South Carolina Mississippi Mississippi Texas Texas Tennessee Tennessee West Virginia West Virginia Louisiana Louisiana Georgia Georgia Florida Florida Alabama Alabama North Carolina North Carolina Kentucky Kentucky Virginia Virginia Delaware Delaware 44 66 10 10 14 14 17 17 20 20 24 24 35 35 37 37 47 47 49 49 50 50 Net Tax Net Tax $1,864,900 $1,864,900 $1,291,050 $1,291,050 $1,264,358 $1,264,358 $1,033,544 $1,033,544 $833,234 $833,234 $783,407 $783,407 $760,381 $760,381 $677,683 $677,683 $533,776 $533,776 $491,071 $491,071 $327,100 $327,100 $241,498 $241,498 $238,840 $238,840 Effective Tax Rate Effective Tax Rate 3.73% 3.73% 2.58% 2.58% 2.53% 2.53% 2.07% 2.07% 1.67% 1.67% 1.57% 1.57% 1.52% 1.52% 1.36% 1.36% 1.11% 1.11% 0.98% 0.98% 0.65% 0.65% 0.48% 0.48% 0.48% 0.48%

Source: National Association ofof Manufacturers (2009) Source: National Association Manufacturers (2009) * Taxes measured inin the states’ largest city only. * Taxes measured the states’ largest city only.

Importantly, South Carolina’s effective tax rate isisalmost 2.5 times greater than Importantly, South Carolina’s effective tax rate almost 2.5 times greater than Georgia’s tax, and almost 4 4 times greater than North Carolina’s. This puts South Carolina at a Georgia’s tax, and almost times greater than North Carolina’s. This puts South Carolina at a serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina has the highest tax inin the country on industrial property, it should be no surprise that it has has the highest tax the country on industrial property, it should be no surprise that it has one of the lowest per capita incomes and economic growth rates inin the country. one of the lowest per capita incomes and economic growth rates the country. Although it it is probably not critical that South Carolina set its tax rate to the lowest in Although is probably not critical that South Carolina set its tax rate to the lowest in the country, it itshould definitely make it itatatleast competitive for the Southeast. Since the country, should definitely make least competitive for the Southeast. Since Georgia’s rate isis effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate Georgia’s rate atataround 1 1percent might be sufficient totoattract more industry. Working to reduce the around percent might be sufficient attract more industry. Working to reduce the various taxes applied toto industry would seriously improve the state’s competitiveness. various taxes applied industry would seriously improve the state’s competitiveness. Such a a significant reduction in taxes on industrial property would obviously lead to a Such significant reduction in taxes on industrial property would obviously lead to a reduction inintax revenues on industrial property, atatleast initially. However, the overall reduction tax revenues on industrial property, least initially. However, the overall revenue may ininfact increase once the growth rate inin the state begins to pick up andmore revenue may fact increase once the growth rate the state begins to pick up and more industry moves into the state. Furthermore, ifif the official tax rates are lowered, then the state industry moves into the state. Furthermore, the official tax rates are lowered, then the state

CHAPTER 5: SPECIFIC TAX REFORMS

187 13

Presumably the original intent of imposing a tax rate schedule with graduated marginal tax rates was to make the income tax progressive. However, what progressivity exists in the state’s income tax structure is due to the zero tax on the first $2,630 of income, and because of the graduated marginal tax rates. However, since the marginal tax rate increases over such small steps in income, as shown in Figure 5.5, most of the progressivity occurs at lower income levels, not higher levels of income. At higher income levels, the average tax rate hardly increases at all. This nature of the current tax is directly contradictory to the goal of progressivity. So although on the surface it appears that the tax satisfies the vertical equity condition, it really does this only at the lower income levels reducing the Jameson intended wealth of these lowest income taxpayers, not the Taylor consequence.

10

PUTTING CHILDREN FIRST: WEIGHTED STUDENT FUNDING IN SOUTH CAROLINA

It Figure is no secret that jumpstarting South Carolina’s economy, rates comparedfact, 5.5: South Carolina income tax: Currentnationamong-the-worst-in-thetax school system. In to nation, requires reforming the state’s among-the-worst-in-the inflation-indexed expanding individual liberty, streamlining fixing both requires essentially the same solutions: rates, 2009 government, and encouraging innovation and creativity. As far as education policy is concerned, one idea in particular promises to bring about – and has brought about – these Income This policy is weighted Tax reforms in numerous school districts across the country. Tax Rates/Brackets if 1959student Current Income Tax Schedule was Inflation Adjusted to funding. Rates/Brackets 2009 Weighted student funding (WSF) is a student-centered mechanism of school funding Tax Tax Average Tax Rate in Taxable Income is assigned to individual Rate which funding Average Tax students, rather than via inflexible categorical Amount programs. Under WSF, funding follows each child, Amount being distributed directly to the ideally school the child attends. Such funding varies for each$125 student as based on different needs or $5,000 $71 1.42% 2.5% weights correlated to disabilities, socio-economic status, academic achievement, and other socioeconomic $10,000 $290 $250 2.90% 2.5% indicators. More specifically, WSF provides flexible funding that encourages schools to take $15,000 $604 $377 4.03% 2.51% responsibility for using resources as efficiently as possible to provide each student with the services that are best for them. Thus WSF is much more than a method of2.63% education, funding $20,000 $954 $527 4.77% it is a means of creating a culture of high expectations, accountability and transparency in the $30,000 $1,654 $834 5.51% 2.78% public school system. $50,000 $3,054 $1,695 6.10% 3.39% $4,804 $3,127 6.41% 4.17% HOW$75,000 EDUCATION IS CURRENTLY FUNDED $100,000 $6,554 $4,877 6.56% 4.88% In order to better understand how WSF would work in South Carolina, it is necessary $8,377 $150,000 $10,054 6.70% 5.58% to look at how schools are currently funded. First, we want to provide readers with a brief $200,000 $13,554 $11,877 6.77% 5.94% reminder of why South Carolina so desperately needs weighted student funding. There is no disputing that South Carolina’s educational system is among the worst in the United States.1 Consider the following: shows what the average tax rates are for various incomes and taxes Figure 5.5 also under the current tax system in South Carolina. In the right columns it also shows what the • taxes and average tax rates wouldin South Carolina failed to meet federal for inflation. The � 82 percent of schools be if the 1959 tax tables were indexed ‘adequate yearly figure clearly shows (AYP) standards for 2008. rate structure is more uniformly progressive, progress’ that the 1959 indexed tax especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income individuals South Carolina has 11 of the nation’s 25 worst public schools. � in the state. • Figure 5.5 also shows that the current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the table. As South Carolina income taxes continue toPolicy Council (February 2005); available at: climb while the tax brackets remain 1 See Coulson, Andrew, Achievement in Context, South Carolina stagnant, the state becomes a relatively high-tax Coulson:Thisparticular concern in this era of on state. “Of has a negative impact http://www.scpolicycouncil.com/images/pdf/225.pdf. Observes
global competition is the finding that, as South Carolina’s students are falling to the bottom of the national heap, so, too, is the United States falling to the bottom of the international heap” (2).

3

188 18 4 18

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

manufacturing property taxhas the country. In Figure 5.8 completion the effective property tax manufacturing property tax inthe 4country. high school we present rate –effective property tax • � South Carolina in the th worst In Figure 5.8 we present the 56 percent – in the rates data for Southeastern states, for comparison. The ranks given for the states are out of all rates data country. for Southeastern states, for comparison. The ranks given for the states are out of all 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on property valued atat $25 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on property valued $25 million � ($12.5million SAT machinery the equipment, $12.5 million inininventories, andin the ($12.5 million million The state’s ininmachinery and worst in the Southeast and among the worst $2.5 inventories, and $2.5 • scores are and equipment, $12.5 million million ininUnited States, ahead of Souththe Districteffective tax rate on industrial property isis million fixtures). Notice that South Carolina’s of Columbia, Hawaii and Maine.property fixtures). Notice that only Carolina’s effective tax rate on industrial over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware isis listed in over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware listed in the figure becauseSouth Carolinians have heard that increasing education spending is the best the figure because it is the lowest-tax state.) For years it is the lowest-tax state.) means of improving the state’s public school system. State government, General Assembly, etc. have done that, with the result that the state’s per pupil spending is the third-highest in the Figure 5.8: Industrial Property Taxes in Southeastern states*, terms Southeast (cf.5.8: Industrial Property Taxes inSouth Carolina ranked 9th in2007 of Figure Figure 10.1). Moreover, during the 1990s Southeastern states*, 2007 how fast it State increased K-12 (of 50) near the top in terms of the State Rank expenditures and Tax Net continues to rankEffective Tax Rate Rank (of 50) Net Tax Effective Tax Rate proportion of revenue it devotes to education.2 South Carolina 11 $1,864,900 3.73% South Carolina $1,864,900 3.73% Mississippi 44 $1,291,050 2.58% Mississippi $1,291,050 2.58% Figure 10.1 Southeastern Per Pupil Spending 2007 U.S. Census Data Texas Texas Tennessee Tennessee West Virginia West Virginia Louisiana Louisiana $12,000 Georgia$10,210 Georgia
$10,000

66 10 10 14 14 17 17 20 20
$9,127 24 24 $8,533

$1,264,358 $1,264,358 $1,033,544 $1,033,544 $833,234 $833,234 $783,407 $783,407 $760,381 $760,381 $677,683 $677,683 $8,514 $8,391 $533,776 $533,776 $491,071 $491,071 $327,100 $327,100 $241,498 $241,498 $238,840 $238,840

2.53% 2.53% 2.07% 2.07% 1.67% 1.67% 1.57% 1.57% 1.52% 1.52% 1.36% 1.36% $7,883 1.11%$7,473 1.11% 0.98% 0.98% 0.65% 0.65% 0.48% 0.48% 0.48% 0.48%
$7,113

Florida Florida Alabama Alabama $8,000 North Carolina North Carolina $6,000 Kentucky Kentucky
$4,000

35 35 37 37 47 47 49 49 50 50

Virginia Virginia Delaware Delaware

Source: National Association Manufacturers (2009) Source: $2,000 National Association ofof Manufacturers (2009) * Taxes measured inin the states’ largest city only. * Taxes measured the states’ largest city only.
$0

Importantly, South Carolina’s effective tax rate isisalmost 2.5 Mississippigreaterthan Importantly, South Carolina’s effective tax Alabama almost 2.5times greater than rate times Tennessee Virginia Georgia South Florida North Georgia’s tax, and almost 4 4 times greater than North Carolina’s.Carolina South Carolina atat a greater Georgia’s tax, and almost times Carolina than North Carolina’s. This puts South Carolina a This puts serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina has the highest tax inin the country on industrial property, it should be no surprise that it has has the highest tax the country on industrial property, it should be no surprise that it has one of the lowest per capita incomesthe answer. Moving forward, in the country. one ofClearly, more money incomes and economic growth rates the real challenge is for the the lowest per capita is not and economic growth rates in the country. Although is probably not critical that South Carolina its tax rate to the lowest in state to Although itthe probablysignificant resources it Carolina toset its tax rate to the lowest in better use it isalready not critical that South devotes setpublic education. Weighted the country, it itshouldfor definitelymake itofatatleast competitive for the Southeast. Since the country, allows definitely make it resources.competitive for the Southeast. Since least student funding should this efficient use Georgia’s rateCarolina’s public school funding North Carolina’s is just under 1 percent, athe isis effectively 1.52 percent and is essentially derived from three sources: rate effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate Georgia’s rate South atataround 1 1percentthemightbe sufficient totoattract For fiscal year 2009-2010 to reduce the around percentmight and local communities. more industry. Working (FY09-2010), attract more industry. Working to reduce the federal government, state be sufficient various taxes applied toto industry would seriously improve the state’s competitiveness. various taxes applied industry would seriously improve the state’s competitiveness. Such a a significant reduction in taxes on industrial property would obviously lead to a Such significant reduction in taxes on industrial property would obviously lead to a reduction inintax revenues on industrial property, atatleast initially. However, the overall reduction tax revenues on industrial property, least initially. However, the overall revenue may ininfact increase once the growth rate inin the state begins to pick up andmore revenue may fact increase once the growth rate the state begins to pick up and more 2 Bryan Hassel and into the Roza, Funding the Child:the official tax rates Carolina throughthen the state industry moves Margueritestate. Furthermore, ififGetting ResultstaxSouth are lowered, then the state industry moves into the state. Furthermore, the official in rates are lowered, Weighted
Student Funding, South Carolina Policy Council with the Thomas B. Fordham Foundation (January 2007): 1-2; available at: http://www.scpolicycouncil.com/images/pdf/79.pdf.

Chapter 10: putting ChilDren EFORMS CHAPTER 5: SREGULATORY R first CHAPTER 8: PECIFIC TAX REFORM

189 13 5

Presumably are projected to reach imposing of $11,242. schedule with graduated per pupil allocationsthe original intent of an average a tax rate 3 This amount consists of marginal of $5,792 in local dollars; $4,153 in state progressive. However, whatfunds. For our averages tax rates was to make the income tax funds; and $1,296 in federal progressivity exists in the state’s income tax structure is important than whaton the first $2,630 each pot of purposes, the source of these funds is less due to the zero tax can be done with of income, and because of and state allocations, in particular, are controlled by specific programmatic money. Federal the graduated marginal tax rates. However, since the marginal tax rate increases over such small steps in income, as shown in Figure 5.5, most of the progressivity mandates that govern what are called ‘categorical funds.’ Federal funding, for instance, is occurs at lower I (of thelevels, not higher Secondaryincome. At Act) guidelines levels, the subject to Title income Elementary and levels of Education higher income and other average tax rate hardly increases at or the Mathematics and ScienceisPartnership Program). requirements (e.g., Reading First all. This nature of the current tax directly contradictory to the goal of state funding is restricted to on the surface it appears that the tax satisfies the Nearly half progressivity. So although certain initiatives, such as reading programs, class vertical equity or summer school. does this only at the lower income levels reducing the size reduction, condition, it really wealth of these lowest income taxpayers, which strings are attached. In order to obtain the Categorical funds are funds to not the intended consequence. money, schools or districts may need to create a special program or, launch a new school altogether.5.5:their groundbreaking income tax: Current tax ratesBryan Hassel and Figure In South Carolina report on WSF in South Carolina, compared to Marguerite Roza (2007) delineate some of the ways categorical funding handicaps student inflation-indexed rates, 2009 achievement and innovation:
Because the funds arrive to school districts inIncome Tax Rates/Brackets if with its own so many different pots, each 1959 Tax restrictions on howCurrentbe used, district services are at times fragmented with multiple it can Income Tax Schedule was Inflation Adjusted to Rates/Brackets programs/services for each type of student. The fragmentation of the funding restricts districts 2009 from making decisions about how best to meet the needs of its students and instead forces Tax Tax districts to separate resources according to their categorical source.Average Tax Rate

Taxable Income

Amount $290

Average Tax Rate

Amount $250 $377 2.5% 2.51%

Consider a few examples of how this system may thwart district efforts to achieve worthy $5,000 $71 $125 1.42% 2.5% goals:

$10,000

2.90%

CREATING $15,000 AN INNOVATIVE NEW SCHOOL $604 4.03%

$20,000 districts cannot combine all of their funds to offer a comprehensive, innovative $954 $527 4.77% 2.63% Currently school designed$1,654 the unique needs of its students, despite the fact that the state has around $30,000 $834 5.51% 2.78% $50,000 Rather, $3,054 $1,695 models. if a district that6.10% to use funds to finance a new 3.39% model with a wants school comprehensive approach, the district might attempt to cobble together 4.17% some combination of $75,000 $4,804 $3,127 6.41% the state’s 25 separate categorical allocations earmarked for alternative schools, such as: $100,000 6.56% 4.88% junior scholars, $6,554in government, homework$4,877 and others as a way to fund the youth centers,
school. However, some of these allocations are intended only for math and science schools, or $8,377 $150,000 $10,054 6.70% 5.58%

several categorical allocations intended specifically to help districts fund different school

$200,000 $13,554 $11,877 6.77% 5.94% are earmarked only for operating costs; others can be applied only for personnel. Other funds

schools for arts and humanities, or ‘lab schools,’ or for SAT improvement. Some of the funds are intended only for special services (like character education or alcohol abuse services). As

a result of all shows what the average new innovative various incomes and funds Figure 5.5 alsothese restrictions, creating atax rates are for school means piecing taxes together into a system in South may or may the right columns it 4 under the current taxpatchwork quilt thatCarolina. In not have any coherence.also shows what the taxes and average tax rates would be if the 1959 tax tables were indexed for inflation. The figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income individuals in the state. Figure 5.5 also shows that the current tax system charges all income groups more in 3 As adjusted for ‘regional cost differences,’ The Education Week Research Center reports that South Carolina’s taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the adjusted per-pupil expenditure is $8,339. The national (adjusted) average is $8,973. table. As South Carolina Hayek (1945) explained that individuals have specific knowledge of time, place income taxes continue to climb while the tax brackets remain 4 As discussed in Chapter 3, F.A. stagnant, the stateothers cannot a relatively high-tax state. This has aannegative impact on becomes always possess. The knowledge necessary to run entire economy cannot and circumstances that
be known by only a few individuals, which is why central planning cannot work. Hall (2006) explains how this insight applies to the education system, and why decisions are best made at the school rather than district level.

190 18 6 18

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

CLOSING property tax the manufacturing property tax inin the country. In Figure 5.8 we present the effective property tax manufacturingACHIEVEMENT GAPS country. In Figure 5.8 we present the effective property tax rates data for Southeastern states, for comparison. The ranks given for the states are out of all rates data for Southeastern states, for comparison. The ranks given for the states are out of all Several ‘net tax’ and ‘effective rate’ are calculated based on property valued $25 50 states. The ‘net tax’ and ‘effective taxforrate’ are calculated based on property valued at $25 50 states. Thedifferent allocations existtax a district interested in creating a program toatclose better serve low-performing $12.5 million come with and $2.5 million achievement gapsininmachinery and equipment, $12.5 million inininventories, and $2.5 ($12.5 million million ($12.5million andmachinery and equipment, students. Again, all inventories,their own restrictions which, in combination, make it difficult or impossible toindustrial property is use them well. Some million inin fixtures). Notice that South Carolina’s effective tax rate on industrial property is million fixtures). Notice that South Carolina’s effective tax rate on specify that funds must be used for Reading Recovery (a specific reading program); others over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware isis listed in over 7.8 times class size reduction in the primary years; others are for schools to providelisted in higher than the most industry-friendly state, Delaware. (Delaware summer focus on the figure because itstudents. lowest-tax set of restrictions may have its own logic, districts may find the figure because it is the While each state.) assistance to is the lowest-tax state.) it difficult to meet their own students’ specific needs. For example, consider a district with many students who are employed in tourism over the summer. For these locales, restricting funds 5.8: on summer Property Taxes in Southeastern states*, achieve Figure 5.8:useIndustrialProperty Taxes in Southeastern states*, 2007 Figure for Industrial assistance makes little sense. The district would probably2007 better results with these students by using the funds for a Saturday program during the school State Rank (of 50) Net Tax Effective Tax Rate Rank (of 50) Net Tax Effective Tax Rate year.State

South Carolina 11 $1,864,900 South Carolina $1,864,900 BUILDING TEACHER KNOWLEDGE AND SKILLS Mississippi 44 $1,291,050 Mississippi $1,291,050

3.73% 3.73% 2.58% 2.58%

2.53% Texas Carolina has 15 6different programs designed to fund professional development or 6 $1,264,358 Texas $1,264,358 2.53% South enhance teacher quality. Each has its own restrictions, requirements, and specific purpose, Tennessee 10 $1,033,544 2.07% 2.07% Tennessee 10 $1,033,544 West Virginia development initiative that truly raises the level of teaching capability.5 14 $833,234 1.67% West Virginia 14 $833,234 1.67% professional Louisiana 17 $783,407 1.57% Louisiana 17 $783,407 1.57% As indicated above, federal funds are often restricted by categorical funding Georgia 20 $760,381 1.52% Georgia 20 $760,381 1.52% requirements. Although federal funding accounts for approximately 12 percent of per pupil Florida 24 1.36% Florida $677,683 funding in South Carolina,24there is little $677,683 state lawmakers can 1.36% do about lifting these stipulations. The good news 35 is that local $533,776which makes up about 52 percent (up here funding, 1.11% Alabama 35 Alabama $533,776 1.11% from 48 percent for 2008), of per pupil funding is not per se subject to state categorical North Carolina 37 $491,071 0.98% 37 $491,071 0.98% North Carolina mandates. That being said, the sales tax/property tax swap (Act 388) passed in 2006 ceded to Kentucky 47 $327,100 Kentucky 47 $327,100 0.65% the state control over education dollars formerly derived from 0.65% property taxes.6 local Moreover, state mandates exercise a great deal$241,498 of influence over how 0.48% can spend their districts Virginia 49 0.48% Virginia 49 $241,498 education funds – for instance, funding unique programs or increasing teacher salaries. Again, Delaware 50 $238,840 0.48% Delaware 50 $238,840 0.48% the source of each school’s funding is less important than what can be done with each pot of Source: National Association Manufacturers (2009) Source: money.TaxesNational Association ofof largest cityour (2009) For measured the states’ largest city only. this reason, states’ Manufacturers * Taxes measured inin thewe will focus only. attention on those categorical restrictions that * hamper state funding. Importantly, South Carolina’s effective tax rate isisalmost 2.5 times greater than Importantly, South Carolina’s effective tax rate almost 2.5 times greater than STATE FUNDINGand almost 4 times greater than North Carolina’s. This puts South Carolina at a Georgia’s tax, and almost 4 times greater than North Carolina’s. This puts South Carolina at a Georgia’s tax, serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina The the highest tax inpublic country financing is property, it it should be no surpriseEducation has state’s share tax in the schoolon industrial primarily controlled by the 1977 that it it has has the highest of the country on industrial property, should be no surprise that has Finance the lowestthecapita incomes and economic growth rates inin the country. one of the lowest per 1984 Educationand economic growthThe former distributes education one of Act and per capita incomes Improvement Act. rates the country. dollars Although it it is probably not critical district’s Carolina set its tax rateas to theindex ofin proportionately as based on eachthat South tax base (referred to to the lowest in Although is probably not critical that South Carolina set its tax rate the lowest taxpaying ability) shoulddefinitelyfor makeit itatatleast competitive for FundSoutheast. Since and definitely roughly 65 least competitive forthe K-12 education percent of General the Southeast. Since the country, it itshould accounts make the country, expenditures. is indicated in1.52 percent and North Carolina’sSouth Carolina 1 percent, a rate Georgia’s rateAsis effectively Hassel and Roza’sNorth Carolina’s is just under Policy Council Georgia’s rate effectively 1.52 percent and report for the is just under 1 percent, a rate (2007) on 1 1percentstudent funding, 45 percent of state education funding isto reduce the atataround weighed might be sufficient totoattract more industry. Working restricted by around percent might be sufficient attract more industry. Working to reduce the categorical programs. Inindustry would to Education Week,the state’s competitiveness. various taxes applied totofact, accordingseriously improve the state’s competitiveness. in the various taxes applied industry would seriously improve South Carolina ranked fifth nation with at aleast 74 different categorical on industrial property requires. obviously lead to a Such a significant reduction inin taxesfunding programs it would obviouslyand Roza Such significant reduction taxes on industrial property would Hassel lead to a delineate some taxrevenues in onindustrial property, atatleast initially. However, the overall of revenues which categorical funding least initially. However, the overall reduction inintax the ways on industrial property, hampers schools: reduction revenue may ininfact increase once the growth rate inin the state begins to pick up andmore revenue may fact increase once the growth rate the state begins to pick up and more industry moves into the state. Furthermore, ifif the official tax rates are lowered, then the state industry moves into the state. Furthermore, the official tax rates are lowered, then the state 5
6

making it difficult or impossible for a district to combine the funds into one coherent

Hassel and Roza, 8-9. This legislation can be found at: http://www.scstatehouse.gov/cgi-bin/web_bh10.exe?bill1=4449&session=116.

Chapter 10: putting ChilDren EFORMS CHAPTER 5: SREGULATORY R first CHAPTER 8: PECIFIC TAX REFORM

191 13 7

Presumably the original intent of imposing a tax rate schedule with graduated INHIBITS SPENDING COHERENCE marginal tax rates was to make the income tax progressive. However, what progressivity exists in the state’s income tax structure is due to the zero tax on the first $2,630 of income, Each of the graduated marginal tax rates. However, since the marginal students and becausedistinct state allocation (or ‘categorical’) is intended to serve a specific group oftax rate or further some specific program. As result, regulations often most separate accounting, increases over such small steps in income,aas shown in Figure 5.5,requireof the progressivity occurs place limits on what can be not higherwith funds, and prescribe in detailincome levels, the at lower income levels, purchased levels of income. At higher what services are to be provided and how. The effect is to prohibit commingling of funds across categories, average tax rate hardly increases at all. This nature of the current tax is directly contradictory making it difficult to pull funds from different line items to design an intentional, coherent to the goal of progressivity. So although on the surface it appearson topthe one satisfiesover program. The result in many cases is the layering of programs that of tax another the verticaltime, making it difficult to align the use of funds with district and school strategies and equity condition, it really does this only at the lower income levels reducing the wealth of these lowest income taxpayers, notprograms are working. priorities or evaluate how well different the intended consequence.
IMPOSES South Carolina income tax: Current Figure 5.5: BURDENSOME ACCOUNTING AND FUND MANAGEMENT tax rates compared to inflation-indexed rates, 2009 Funds from each source need to be accounted for separately. As a result, districts or schools may have hundreds of different funding sources to manage. These cumbersome requirements often necessitate the oversight of a program manager to take on administrative tasks, diverting Income Tax Rates/Brackets if 1959 Tax funds from educational activities. Current Income Tax CREATES UNPREDICTABILITY

Rates/Brackets

Schedule was Inflation Adjusted to 2009

Tax Tax Average Tax Rate Taxable Income With resources Amount the creation Tax a myriadAmount tied to Average of Rate of programs, each with its own complex $5,000 will be at their disposal. $71 1.42% resources $10,000 $15,000
FORCES A ONE-SIZE-FITS-ALL APPROACH formula for allocation, districts have a difficult time predicting from year to year what

$125

2.5% 2.5%

$290 $604

2.90% 4.03%

$250 $377

2.51%

Districts $20,000 and schools differ in their needs and in their capacities to solve the problems they $954 $527 4.77% 2.63%

$30,000 ways that school officials think are the most efficient and effective.7 $1,654 $834 5.51% 2.78% funds in $50,000 $3,054 $1,695 6.10% 3.39% In short, $75,000 categorical funding is inefficient, reduces the amount of money available for $4,804 $3,127 6.41% 4.17% instructional services, and is difficult to track and manage. Moreover, such restrictions $100,000 $6,554 $4,877 6.56% 4.88% encourage a top-down approach to school funding that centralizes control in the hands of $8,377 $150,000 6.70% 5.58% legislators, instead of $10,054up schools or districts to fund the programs they think will work freeing best for their students. $200,000 $13,554 $11,877 6.77% 5.94% A second problem with the way schools are funded in South Carolina is that funding goes to districts, instead of schools themselves. This is partially attributable to the dependence Figure 5.5 also shows what the average tax rates are for various incomes and taxes on categorical funding, which creates logistical and accounting burdens for individual under the current tax system in South Carolina. In the right columns it also shows what the schools. It is also a reflection of a bureaucratic administrative culture in South Carolina’s taxes and average tax rates would be if the 1959 tax tables were indexed for inflation. The school districts and legislature that stifles leadership and innovation. figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, The result is that schools are not free to spend education dollars on targeted programs especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income that would be most beneficial to their students. WSF experts Hassel and Roza argue: individuals in the state. Figure 5.5 also shows that school districts in so many different income groups more in the current tax system charges all pots, each with its own Because the funds arrive to taxes than an indexedhow itschedule. The districtexceptionare thetimes fragmented earner in the restrictions on rate can be used, only services is at $5,000 income with multiple table. As South Carolina income taxes continue fragmentation of the funding restricts districts programs/services for each type of student. The to climb while the tax brackets remain stagnant, the state becomes a relatively high-tax state. This has a negative impact on
7

face. Categoricals that come with prescriptions for use limit districts and schools from using

Hassel and Roza,, 2, 5.

192 18 8 18

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

from making decisions the country. Figure 5.8 we present the effective property tax manufacturing property tax inin the how best In Figure 5.8 we present the effective property tax manufacturing property tax aboutcountry. Into meet the needs of its students and instead forces districts Southeastern states, for comparison. The ranks given 8 rates data for Southeastern states, for comparison. The ranks given for the states are out of all rates data for to separate resources according to their categorical source. for the states are out of all 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on property valued atat $25 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on property valued $25 million As indicated above, weighted student funding allocates millioninininventories,each child ($12.5 million million ($12.5million ininmachinery and equipment, $12.5 million machinery and equipment, $12.5 education dollars to and $2.5 inventories, and $2.5 based in his specific needs. What this means, in practice, is rate each school receives a millionon in fixtures). Notice that South Carolina’s effective tax that on industrial property isis million fixtures). Notice that South Carolina’s effective tax rate on industrial property specific times of funding to most industry-friendly state, Delaware. (Delaware isisfunding over 7.8amounthigher than theeducate each child. The thinking here is that education listed inin over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware listed should be centered onthe lowest-tax state.) the figure because it it is schools rather state.)districts because schools are the locus of each the figure because is the lowest-tax than student’s education. Thus while districts can provide some administrative support, most decisions about how education funds are spent should be made at the school level. Understanding whyIndustrialbe the case Taxes in Southeastern states*, 2007 in Figure 5.8: Industrial Property requires evaluating school funding procedures Figure 5.8: this should Property Taxes in Southeastern states*, 2007 light of the goals such funding seeks to accomplish. State Rank (of 50) Net Tax Effective Tax Rate State Rank (of 50) Net Tax Effective Tax Rate South Carolina 11 $1,864,900 3.73% South Carolina $1,864,900 3.73%

A NEW WAY OF LOOKING AT SCHOOL FUNDING Mississippi 44 $1,291,050 Mississippi $1,291,050

2.58% 2.58% 2.53% Texas 66 $1,264,358 Texas $1,264,358 2.53% In order to discern the best means for funding public education in South Carolina, the Tennessee 10 $1,033,544 2.07% 2.07% $1,033,544 focus Tennesseebe on what 10 needs to measures determine success. School funding experts generally agree that a Virginia school funding strategy $833,234 is one sustained by the 1.67% following three values: West Virginia 14 West successful 14 $833,234 1.67% Louisiana 17 $783,407 1.57% Louisiana 17 $783,407 1.57% � Efficiency • Georgia 20 $760,381 1.52% Georgia 20 $760,381 1.52% • � Equity Florida $677,683 1.36% 1.36% Florida 24 $677,683 • � Accountability 24 1.11% Alabama 35 $533,776 Alabama 35 $533,776 1.11% Weighted student funding would greatly improve the funding of South Carolina’s North Carolina 37 $491,071 0.98% 37 $491,071 0.98% North Carolina school system because WSF can be shown to be the best available strategy within the current 0.65% Kentucky 47 $327,100 Kentucky 47 $327,100 framework for achieving the values articulated above. These values0.65% an objective provide Virginia 49 $241,498 0.48% 0.48% Virginia 49 $241,498 standard for determining which funding policies should be implemented. A WSF system that does Delaware these criteria50 not meet would be a failure.$238,840 the current means of funding public Likewise, 0.48% Delaware 50 $238,840 0.48% schools in South Carolina is of Manufacturers (2009) because it is inefficient, inequitable and a failure precisely Source: National Association of Manufacturers (2009) Source: National Association hinders Taxes measured in the states’ largest city only. * Taxes measured in the states’ largest city only. * accountability. EFFICIENCY Importantly, South Carolina’s effective tax rate isisalmost 2.5 times greater than Importantly, South Carolina’s effective tax rate almost 2.5 times greater than Georgia’s tax, and almost 4 4 times greater than North Carolina’s. This puts South Carolina at a Georgia’s tax, and almost times greater than North Carolina’s. This puts South Carolina at a serious The primary measure of of its ability to public and keep industry. Since South Carolina disadvantage, in terms of its ability the attract school industry. student achievement. serious disadvantage, in terms success in to attract and keepsystem is Since South Carolina For this reason, the federal No Child Left Behind (NCLB) Act ties no surprise that it it to has the highest tax inin the country on industrial property, it should be education fundinghas has the highest tax the country on industrial property, it should be no surprise that has adequatethe lowest per capita incomes and turn, districts and schools are given one of theyearly progress (AYP) goals. In economic growth rates in the country. annual report one of lowest per capita incomes and economic growth rates in the country. cards that record and is probablyperformancethatmeetingCarolina set its tax rate to the lowest in Although it it track theirnot critical that South Carolinagoals. tax rate to the lowest in Although is probably not critical in South these set its With the country, regard to school funding in particular, the competitivefor question is how to Since the country,it itshould definitely make it itatatleast competitive forthe Southeast. Since should definitely make least most relevant the Southeast. use funds efficiently effectively 1.52 percent and North Carolina’s just undertypically assume student performance. School administrators 1 percent, a rate Georgia’s rate isisto enhance1.52 percent and North Carolina’s isis just under 1 percent, a rate Georgia’s rate effectively increasing 1 1percent might isbesufficient toto of improving student Working to As asserted atataround instructional mightbe the best meansattract more industry.achievement.toreduce the around percent time sufficient attract more industry. Working reduce the by the taxes applied toto industry would “greaterimprove the state’s classroom and various Education Oversight Committee, seriously improve thein the competitiveness.in direct various taxes applied industry would seriously investment state’s competitiveness. Such a a significant reduction in taxes on industrial property would obviously lead to a Such significant reduction in taxes on industrial property would obviously lead to a reduction inintax revenues on industrial property, atatleast initially. However, the overall reduction tax revenues on industrial property, least initially. However, the overall revenue may ininfact increase once the growth rate inin the state begins to pick up andmore revenue may fact increase once the growth rate the state begins to pick up and more industry moves into the state. Furthermore, ifif the official tax rates are lowered, then the state industry moves into the state. Furthermore, the official tax rates are lowered, then the state
8

Ibid., 8.

Chapter 10: putting ChilDren EFORMS CHAPTER 5: SREGULATORY R first CHAPTER 8: PECIFIC TAX REFORM

193 13 9

Presumably the the academic of imposing tax rate In turn, with graduated instruction will improve original intent performance ofa students.”9schedule allocating more marginal tax rates was to make requires reducingprogressive. However, what progressivity money to instructional time often the income tax administrative costs. exists in the of the primary tax structure is due is that zero tax on the first $2,630 of income, One state’s income strengths of WSF to the it simplifies the debate regarding the and because of education funds by directly tax rates. However, since to specific students.rate efficient use of the graduated marginal tying instructional funding the marginal tax As increases over suchthe Oversight income, as shown ina Figure 5.5, most ofpercent of funds recommended by small steps in Committee, under WSF model , 85 the progressivity occurs at by each student wouldnot higher levels of income. At higher income levels, that lower income levels, go to instruction and instructional support services for the generated average tax rate hardly point hereat all. This nature mandates an increasedirectly contradictory student. The important increases is not that WSF of the current tax is in instructional time to the goal ofbut that such funding makeson easier to correlate student funding with student (it does not), progressivity. So although it the surface it appears that the tax satisfies the vertical equity condition, it really does this only at the lower income levels reducing the achievement. wealth of these lowestsimply shifting funding tointended consequence. each student and his Moreover, by income taxpayers, not the where it belongs – to school – reductions in administrative time and costs are realized almost automatically. Consider the following benefits realized by school districts in other rates that have adopted Figure 5.5: South Carolina income tax: Current tax states compared to WSF:

inflation-indexed rates, 2009

• � Hartford, Connecticut. In three years, the Hartford Public School District increased instructional funding by more than Tax Rates/Brackets if 1959 Tax Income 40 percent by correspondingly Current administrative reducing central office Income Tax expenses. Schedule was Inflation Adjusted to Rates/Brackets 2009 • � Baltimore, Maryland. In two years, Baltimore CityAverage Tax Rate Schools succeeded in Tax Tax Average Tax Rate Taxable reallocating 80 percent of district operating costs to individual schools, increasing Income Amount Amount school funding by more than $88 million.10 $5,000 $71 $125 1.42% 2.5% $10,000 $290 $250 2.90% As things stand, South Carolina’s current system of funding 2.5% schools is public extremely inefficient. The pioneering 4.03% WSF report issued by the Thomas B. Fordham Institute $15,000 $604 $377 2.51% (2006) discusses this problem in detail. “Policies at the district, state, and federal level all $20,000 $954 $527 4.77% 2.63% contribute to the problem,” observes the report. “Many of the assumptions and political deals $30,000 $1,654 $834 5.51% 2.78% built into those policies deny, ignore, or even compound those problems. These public policies are so flawed and so consistently fail to solve problems that the entire financing $50,000 $3,054 $1,695 6.10% 3.39% system needs to be modernized if the core problems of inequity and antiquity are to be $75,000 $4,804 $3,127 6.41% 4.17% solved.”11
$100,000 $6,554 $4,877 6.56% 4.88% One inefficiency mentioned by the Fordham Institute report entails districts using minimum staffing requirements to provide funding to$8,377 The solution, used by many of schools. $150,000 $10,054 6.70% 5.58% the districts that have implemented WSF, is to give principals discretion over hiring and $200,000 $13,554 $11,877 6.77% staffing decisions. The idea here is that funding should be allocated on 5.94% a per student basis, rather than a per teacher basis. More generally, WSF is thus grounded in the insight that Figure 5.5 also or inputs, the average tax rates closely as possible to specific educational resources, shows what should correspond asare for various incomes and taxes under the – in thistax system in South Carolina. particular students. it also shows what the outcomes current case, the academic success of In the right columns taxes and average tax rates would be if the 1959 tax tables were indexed for inflation. The figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income 9 individuals inOversight Committee is appointed by the legislature and the governor to monitor the state’s The Education the state. progress Figure 5.5 also shows that the South Carolina Education Accountability Act ofgroups more in in meeting standards set down by the current tax system charges all income 1998. See 200607 Report on an Use of the rate schedule. The only exception is the $5,000 income earner in the taxes than the indexed Flexibility Provisos; available at: http://eoc.sc.gov/NR/rdonlyres/005CF7BA-A43F421B-AB04-72B8B8B6E4A3/16066/FlexibilityReportText200607.pdf. table. Lisa,South Carolina Formula Yearbook,continue to climb while the tax brackets remain As Weighted Student income taxes Reason Foundation (2009): 139; available at: 10 Snell, stagnant, the state becomes a relatively high-tax state. This has a negative impact on http://reason.org/files/wsf/yearbook.pdf.
11

Fund the Child: Tackling Inequity & Antiquity in School Finance, Thomas B. Fordham Institute (June 2006): 14; available at: http://www.edexcellence.net/fundthechild/Manifesto%20Report.pdf.

funding varies widely from district to district in South Carolina. Consider that for FY08-2009 only one of the school districts (Allendale County Schools) located in one of the state’s five poorest counties also ranked among the top five in terms of highest per pupil allocations. At the third poorestCC the state, 194 same time, Dillon County, the UUNLEASHINGin APITALISM was home to three of the bottom 18 NLEASHING APITALISM 10 18 five districts in terms of per pupil spending.12 As Figures 10.2 and 10.3 below indicate, projected education funding for FY09-2010 produced similar results. manufacturing property tax inin the country. In Figure 5.8 we present the effective property tax Emanufacturing property tax the country. In Figure 5.8 we present the effective property tax QUITY rates data for Southeastern states, for comparison. The ranks given for the states are out of all rates data for Southeastern states, for comparison. The ranks given for the states are out of all 50 states. The ‘net tax’ and ‘effective tax rate’movement – andbased on property valued at $25 One states. The ‘net tax’ andbehind the tax rate’ are calculated with bipartisan valued at $25 50 of the primary drivers ‘effective WSF are calculated based on property supporters as Figure 10.2 Per Pupil Funding Five Poorest Counties in South $2.5 millionas ($12.5million Secretary of Education William $12.5millionto ininventories, and Staff varied ($12.5 million inmachinery and equipment, $12.5 millioninClinton Chief of $2.5 million former U.S. in machinery and equipment, J. Bennett inventories, and million inin fixtures). fairly thatcalled such (FY09-2010) tax rate on industrial Educationis South Carolina’s effective tax John Podesta, it canNotice be Carolina – is the effective equitable funding.property is million fixtures). Notice that South Carolina’s desire for rate on industrial property % in poverty
 Total funding
 over 7.8varies widely from the most industry-friendly Carolina. Consider(Delaware is listed in funding times higher than district to district in South state, Delaware. (Delaware FY08-2009 over 7.8 times County
 higher than the most industry-friendly state, Delaware. that for is listed in the figureofbecause it isdistricts (Allendale County Schools) located in one of the state’s five only figure the school the lowest-tax state.) the one because it is the lowest-tax state.) Allendale
 36.8%
 $13,053
 poorest counties also ranked among the top five in terms of highest per pupil allocations. At the same time, Dillon County, the third poorest in the state, was home to three of the bottom 12 Williamsburg
 five Figure 5.8: Industrial Property Taxes Figures 10.2 and 10.3 below 2007 districts in Industrial Property Taxes in Southeastern states*, 2007 As Figure 5.8:terms of per pupil spending. 36.3%
inSoutheastern $11,367
 indicate, states*, projected education funding for FY09-2010 produced similar results. Dillon
 Dillon Rate State Rank (of 50) Net Tax Effective Tax1=$9,333
 State Rank (of 50) Net 27.7%
 Tax Effective Tax Rate South Carolina 11 $1,864,900 3.73% South Carolina $1,864,900 3.73% 
 
 Dillon 2=$8,243
 Mississippi 44 $1,291,050 2.58% Mississippi 2.58% Figure 10.2 Per Pupil Funding$1,291,050 Five Poorest Counties in South 
 Texas 
 Dillon 3=$7,865
 2.53% Texas 6 6 Carolina (FY09-2010) $1,264,358 $1,264,358 2.53% Figure 10.2: Per Pupil Funding % in poverty
 Counties infunding
 Five Poorest South County
 10 Total Tennessee $1,033,544 2.07% 2.07% Tennessee 10 $1,033,544 
 
 
 Carolina (FY09-2010) West Virginia 14 $833,234 1.67% West Virginia 14 $833,234 1.67% Allendale
 36.8%
 County % in poverty Total $13,053
 funding 
 Louisiana 
 Louisiana 17 $783,407 1.57% 
 17 $783,407 1.57% Allendale 36.8% $13,053 Williamsburg
 36.3%
 $11,367
 Williamsburg 36.3% $11,367 Georgia 20 $760,381 1.52% Georgia 20 $760,381 1.52% Bamberg
 27.4%
 Bamberg 1=$10,889
 Dillon 27.7% Florida 24 $677,683 1.36% 1=$9,333
 1.36% Florida 24 $677,683 Dillon
 27.7%
 Dillon Dillon 1=$9,333 
 
 Bamberg 2=$12,471
 1.11% Alabama 35 $533,776 Alabama 35 $533,776 1.11% Dillon 2=$8,243 
 
 Dillon 2=$8,243
 Dillon 3=$7,865 North Carolina 37 $491,071 0.98% 
 37 $491,071 0.98% 
 North Carolina 
 0.65% Kentucky 47 $327,100 47 $327,100 0.65% 
 Kentucky 
 Dillon 3=$7,865
 Bamberg 27.4%
 
 
 Virginia 49 $241,498 0.48% 0.48% Virginia 49 $241,498 Bamberg 1=$10,889 
 
 
 Bamberg$12,196
 2=$12,471 Delaware 50 $238,840 0.48% Delaware 50 $238,840 0.48% Lee
 26.2%
 Source: National Association ofof Manufacturers (2009)
 
 Source: National Association Manufacturers (2009) 
 *South Carolina
 the states’ largest city only.26.2% * Taxes measured Lee Taxes measured inin the states’ largest city only. 15.1%
 $12,196 $11,242
 South Carolina 15.1% $11,242 Bamberg
 27.4%
 Bamberg 1=$10,889
 Importantly, South Carolina’s effective tax rate isisalmost 2.5 times greater than Importantly, South Carolina’s effective tax rate almost 2.5 times greater than Georgia’s10.3:and almost 4 times greaterFiveNorth Carolina’s. This puts South Carolina at a Georgia’s tax, Per Pupil Funding than Wealthiest This puts South Carolina 
 
 Bamberg 2=$12,471
 Figure tax, and almost 4 times greater than North Carolina’s.Counties in South at a serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina 12 Carolina among property, For FY09-2010, tax in the poorest countiesindustrial the top five in terms of total no surprise that it it has has the highest none ofin the country on are(FY09-2010)it it should bespending. This is because has 
the highest tax the country on industrial property, should be no surprise that has 
 
 budget cuts slightly reduced the state share of Education Financing Act funding. % in poverty Total one of the Countyper capita incomes and economic growth rates inin the country. lowest one of the lowest per capita incomes and economic growth rates the country.funding Beaufort Although it it is probably not critical that South Carolina set its tax rate to the lowest in $15,240 South 
 Although is probably not critical that10.4% Carolina set its tax rate
 to the lowest in 
 Berkeley 10.6% competitive for theSoutheast. Since the country, it itshould definitely make it itatatleast competitive for the $10,733 the country, should definitely make least Southeast. Since Dorchester rate isis effectively 1.52 percent and 26.2%
 Carolina’s is just under 1 percent, a rate Georgia’s rate effectively 1.52 percent and 10.7% Carolina’s is just under 1 percent, a rate North Georgia’s North Lee
 $12,196
 atataround 1 1percent might be sufficient totoattract more industry. Dorchesterto reduce the around percent might be sufficient attract more industry.Working 2=$8,830 the Working to reduce Dorchester various taxes applied toto industry would seriously improve the state’s competitiveness. South Carolina
 15.1%
 $11,242
 various taxes applied industry would seriously improve the state’s competitiveness. Such a a significant reduction in taxes on industrial property would obviously lead to a obviously Such significant reduction in taxes on industrial property would 4=$13,643 lead to a Lexington inintax revenues on industrial property, atatleast initially. However, the overall 10.9% reduction reduction tax revenues on industrial property, least initially. However, the overall Lexington up and revenue may ininfact increase once the growth rate inin the state begins to pick up andmore revenue may fact increase once the growth rate the state begins to pick1=$11,693more industry moves into the state. Furthermore, ifif the official tax rates Lexington 2=$10,736 state are lowered, then the 12 industry moves into the state. Furthermore, the official tax rates are lowered, then the state For FY09-2010, none of the poorest counties are among the top five in terms of total spending. This is because Lexington 3=$13,095 budget cuts slightly reduced the state share of Education Financing Act funding. Lexington 4=$12,423 Lexington 5=$12,363 York 12.1% York 1=$9,557 York 2=$11,870

Berkeley
 Dorchester


10.6%


10.7%
 Chapter 10: putting ChilDren EFORMS CHAPTER 5: SPECIFIC TAX R first Lee 26.2% 
 
 Dorchester 4 = $13,643
 South Carolina 15.1% $11,242 Presumably the original intent of imposing a tax rate schedule with graduated 
 
 marginal tax10.3: was to make Funding Fiveprogressive. However, whatin South Figure rates Per Pupil the income tax Wealthiest Counties progressivity exists in the state’s income tax structure is due to the zero tax on the first $2,6301=$11,693
 Lexington
 10.9%
 Lexington of income, Carolinatax rates. However, since the marginal tax rate (FY09-2010) and because of the graduated marginal County % in poverty Total funding increases over such small steps in income, as shown in Figure 5.5, most of the progressivity 
 
 Lexington 2=$10,736
 Beaufort lower income levels, not higher levels of income. At higher income levels, the 10.4% $15,240 occurs at Berkeley rate hardly increases at all. This nature of the current tax isLexington 3=$13,095
 10.6% $10,733 
 
 average tax directly contradictory Dorchester to the goal of progressivity. So although on the 10.7% it appears that the tax satisfies the surface Dorchester 2=$8,830 
 
 Lexington 4=$12,423
 vertical equity condition, it really does this only at the lower income levels reducing the Dorchester wealth of these lowest income taxpayers, not the intended consequence. 4=$13,643 
 
 Lexington 5=$12,363
 Lexington 10.9% Figure 5.5: South Carolina income tax:
 Current tax rates compared to Lexington 
1=$11,693 
 Lexington 2=$10,736 inflation-indexed rates, 2009 Lexington 
3=$13,095 York
 12.1%
 Lexington 4=$12,423 Income Tax Rates/Brackets1=$9,557
 Lexington1959 Tax 
 
 York if 5=$12,363 Current Income Tax Schedule was Inflation Adjusted to York 12.1% Rates/Brackets 2009York 2=$11,870
 1=$9,557 
 
 York 2=$11,870 Tax Tax Average Tax Rate Average Tax Rate Taxable Income 
 
Amount York 3=$11,232
 York 3=$11,232 Amount York 4=$10,840 $5,000 $71 $125 1.42% 2.5% 
 
 York 4=$10,840
 $10,000 $290 $250 2.90% 2.5% $15,000 $604 $377 4.03% 2.51% No doubt, these inequities should be addressed. Again, WSF offers a solution. The $20,000 $954 $527 4.77% 2.63% promise behind WSF is that education dollars follow the child and that children with special $30,000 $834 5.51% 2.78% needs are funded in a$1,654 that directly serves their needs. WSF in this regard functions manner like a market economy, which focuses on how to best serve its consumers. Under WSF, the $50,000 $3,054 $1,695 6.10% 3.39% district$75,000which a$4,804resides is irrelevant. All things being equal, low-income children, within child $3,127 6.41% 4.17% no matter where they live, are funded equally.13 It is difficult to imagine a fairer allocation $100,000 $6,554 $4,877 6.56% 4.88% formula. $8,377 $150,000 $10,054 6.70% 5.58% 13 Funding capital construction costs would continue to be an issue in that WSF is dedicated to operational costs. $200,000 $13,554 6.77% 5.94% One option for reform here would be to dedicate lottery funding$11,877 poorer districts build and renovate to helping
schools.

$10,733
 Bamberg 1=$10,889 Bamberg 2=$12,471 Dorchester 2=$8,830
 195 13 $12,196

Figure 5.5 also shows what the average tax rates are for various incomes and taxes under the current tax system in South Carolina. In the right columns it also shows what the taxes and average tax rates would be if the 1959 tax tables were indexed for inflation. The figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income individuals in the state. Figure 5.5 also shows that the current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the table. As South Carolina income taxes continue to climb while the tax brackets remain stagnant, the state becomes a relatively high-tax state. This has a negative impact on

196 18 12 18

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

manufacturing property tax inin the country.student receives anpresent amount of base funding. According to the tax model, each In Figure 5.8 we equal the effective property tax manufacturing propertyWSF the country. In Figure 5.8 we present the effective property tax rates funding isSoutheastern states, for comparison. The ranks given for the states are out who This data for Southeastern states, for comparison. The ranks givenHandicapped studentsof all rates data for then supplemented according to various weights. for the states are out of all 50 states. The ‘net attention,‘effective tax rate’ are becalculated with on propertyfunding.atat $25 require additional tax’ and for instance, would calculated based additional valued Such 50 states. The ‘net tax’ and ‘effective tax rate’ are matched based on property valued $25 million ($12.5 milliontied machineryprogram a school $12.5 million ableinventories,but would funding would not be inin to a new and equipment, might not be inin to afford, and $2.5 million ($12.5 million machinery and equipment, $12.5 million inventories, and $2.5 million inin form of additional dollars that could beeffectivehire additionalindustrialor bring inis come in the fixtures). Notice that South Carolina’s used to tax rate on industrial property is million fixtures). Notice that South Carolina’s effective tax rate on teachers property over 7.8 times higher than theThe Fund the Child report explains how this weightinglisted inin specialists times higher child.the most industry-friendly state, Delaware. (Delaware is system over 7.8 to help each than most industry-friendly state, Delaware. (Delaware is listed the figure because it it is the lowest-tax state.) works: the figure because is the lowest-tax state.)
Under WSF, the per-student amount varies with the characteristics of the child. Students with Figure 5.8: Industrialneeds receive Taxes isinSoutheastern states*, 2007 in based on the costs of meeting those Figureadded educational Property extra funding Southeastern states*, 2007 needs. 5.8: amount attached to each student The Industrial Property Taxes calculated by taking a base amount and adding money Rank (of 50)by a series Tax ‘weights’ assigned to various categories of determined50) State Net of Effective Tax Rate State Rank (of Net Tax Effective Tax Rate students. These weights could take the form of dollar amounts: an extra $500 for a South Carolina category, $1,000 for a $1,864,900another. Or they could be expressed in 11 3.73% South Carolina $1,864,900 3.73% student in one student in proportional a $1,291,050 high-need Mississippi 44 2.58% Mississippi terms, with students in $1,291,050 category generating, say, 1.4 or 1.5 2.58% times the base level of funding. Either way, the concept is the same: students with higher Texas of need receive 6 6 more ‘weight’ in$1,264,358 system. … 2.53%districts that have $1,264,358 Texas 2.53% levels the funding Most implemented weighted student funding$1,033,544 assign higher weights 2.07% for: students from lowTennessee 10 $1,033,544 2.07% Tennessee 10 income families; English language learners; students with disabilities (including different West Virginiadifferent 14 of disabilities); and students with previously low test scores.14 $833,234 1.67% West Virginia 14 $833,234 1.67% weights for types

Louisiana 17 $783,407 1.57% Louisiana 17 $783,407 1.57% Of course, questions regarding equitable funding do not disappear under WSF, but Georgia 20 $760,381 1.52% Georgia 20 $760,381 1.52% become part of the debate regarding the value of each weight assigned to various student Floridabenefit, however,24 that the WSF formula forces policy makers to assign specific 24is $677,683 1.36% 1.36% $677,683 needs.Florida The monetary values to specific35 needs, thus making$533,776to determine1.11% this additional it easier whether Alabama $533,776 Alabama 35 1.11% spending isCarolina a measurable impact on student performance. These weights can then be having North Carolina 37 $491,071 0.98% 37 $491,071 0.98% North re-assessed periodically based on the impact on student performance. 0.65% Kentucky benefit for47 $327,100 Kentucky 47 Another South Carolina, in$327,100 is that the0.65% to WSF would particular, shift depoliticize the entire debate regarding equitable funding for rich 0.48% districts versus poor Virginia 49 $241,498 0.48% Virginia 49 $241,498 districts or urban districts versus rural ones. In $238,840 WSF would force policy makers to doing so, Delaware 50 $238,840 0.48% Delaware 50 0.48% address the only inequities that matter: differences in students’ abilities and circumstances Source: National Association ofof Manufacturers (2009) Source: National Association Manufacturers (2009) that might otherwiseinin the states’ largest city only. * Taxes measured prevent them from obtaining the resources they need to be academically * Taxes measured the states’ largest city only. successful. Importantly, South Carolina’s effective tax rate isisalmost 2.5 times greater than Importantly, South Carolina’s effective tax rate almost 2.5 times greater than AGeorgia’s tax, and almost 4 times greater than North Carolina’s. This puts South Carolina at a CCOUNTABILITY almost 4 times greater than North Carolina’s. This puts South Carolina at a Georgia’s tax, and serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina Accountability is tax in the country on industrial property, it should be no surprise that it has has the highest tax innew country on among education officials these days. As noted earlier, has the highest the the buzz word industrial property, it should be no surprise that it has NCLB requires per school be assigned a report growth a rates the country. one of the lowesteach capita incomes and economic card as rates inin the holding schools more one of the lowest per capita incomes and economic growth means of country. accountable. Teachersprobably not critical that South Carolina setscores and exceeding AYPin Although it it is probably accountablethat South Carolina set its tax rate to the lowest Although is are held not critical for improving test its tax rate to the lowest in standards. Principals are definitelymakefor itatatleast competitiveschoolthe Southeast. Since the country, it itshould definitely makeit improving competitivefor the Southeast.while the country, should accountable least overall for performance Since administering isis effectively 1.52 as possible. The Carolina’s is accountability, however, is Georgia’s rate funds as efficiently percent and Northflip side of is just under 1 percent, a rate Georgia’s rate effectively 1.52 percent and North Carolina’s just under 1 percent, a rate responsibility. If we aremightbe hold schoolstoattract more industry. Workingofto reduce the atataround 1 1percent might to sufficient to accountable for the performance each student, around percent truly be sufficient attract more industry. Working to reduce the we need taxes applied to and districts seriously improve the state’screate learning strategies various taxesgive schoolsindustry would the funding flexibilitystate’s competitiveness. various to applied to industry would seriously improve the to competitiveness. appropriate forsignificant reduction inin taxes on industrial property would obviously lead to a Such a a each student. In particular, principals need to be given more flexibility over Such significant reduction taxes on industrial property would obviously lead to a staffing and budgetary decisions. industrial property, Carolina such decisions are the overall reduction inintax revenues on industrial property, atatleast initially. However, made at the reduction tax revenues on Currently, in South least initially. However, the overall district level. ininfact increaseby once Fordham Institute: the state begins to pick up andmore As fact increase the the growth rate inin “Almost no dollars as such reach observed once the growth rate the state begins to pick up and more revenue may revenue may industry moves into the state. Furthermore, ifif the official tax rates are lowered, then the state industry moves into the state. Furthermore, the official tax rates are lowered, then the state
14

Fund the Child, 21-22.

Chapter 10: putting ChilDren EFORMS CHAPTER 5: SREGULATORY R first CHAPTER 8: PECIFIC TAX REFORM

197 13

Presumably the original intent of imposing tax rate schedule with graduated individual schools; the district pays nearly all the bills.a School budgets are developed at the marginal tax ratesdecisionsmake the income tax progressive. However, made there.”15 central office, and was to on hiring, services, and teacher allocation are what progressivity exists in the state’s explain below, the state due to the zero tax on the first $2,630 of income, As we shall income tax structure is government can loosen its control over education andemployingof the graduated marginaldistricts and However, since the marginal tax rate by because several strategies to help tax rates. schools work together to implement a increases overthat provides for more accountability and transparency. Here, the only point we WSF formula such small steps in income, as shown in Figure 5.5, most of the progressivity occurs at lower income levels, not higherislevels of the key obstacles to income levels, the wish to make is that categorical funding one of income. At higher making education average tax rate hardly increases at all. Thisbecauseof the current tax is directly contradictory funding more transparent. This is primarily nature regulations regarding categorical funding to the goal of progressivity.procedures that make surface to impossible to the tax satisfies the require complex accounting So although on the it next it appears that track how money is vertical equity condition, it really does Fund onlyChild report: income levels reducing the being distributed and used. Observes the this the at the lower wealth of these lowest income taxpayers, not the intended consequence.
District allocation practices are so murky and complex that it is difficult to determine how much money is spent at any individual school. Even school tax and district administrators Figure 5.5: South Carolina money their tax: Currentboards rates compared to income schools have. … Even now, most schools receive may have little idea how much inflation-indexed rates, 2009 resources that are tracked at the district level, and not within school budgets.16

Again, we can look at how WSF has worked in other states to illustrate how WSF Income Tax Rates/Brackets if 1959 Tax would improve accountability andIncome Tax in South Carolina: Current transparency Schedule was Inflation Adjusted to Rates/Brackets 2009 • � San Francisco, California. Schools in San Francisco tie weighted student funding Tax Tax Average Tax Rate Average the Rate Taxable to instructional line-items in Tax budget, which are then correlated with specific Income Amount Amount academic goals. $5,000 $71 $125 1.42% 2.5% • � Houston, Texas. School-level budgets in Houston show the weights and funding $10,000 $290 $250 2.90% 2.5% for each subcategory of student and also include academic achievement data. $15,000 $604 $377 4.03% 2.51% $20,000 $527 4.77% 2.63% • � Hawaii. In $954 Hawaii, the only system to have implemented WSF on a statewide basis, $30,000 district officials are able to provide formal input each year as the state $1,654 $834 5.51% 2.78% gradually transitions to a comprehensive WSF funding formula.17 $50,000 $3,054 $1,695 6.10% 3.39% $75,000 $4,804 $3,127 6.41% 4.17% Overall, WSF would eliminate or reduce many of the principal-agent problems that exist in the current public school system (see Chapter 9). $100,000 $6,554 $4,877 6.56% 4.88% $150,000 $200,000 $10,054 $13,554 6.70% 6.77% $8,377 $11,877 5.58% 5.94%

HOW WSF WOULD WORK IN SOUTH CAROLINA

Figure 5.5 also shows what the average tax rates are for various incomes and taxes Implementing weighted South funding In the be relatively it also South Carolina under the current tax system in studentCarolina. should right columns easy in shows what the insofar as average tax rates would a limited 1959 tax tables werefund public education. The taxes and the state already uses be if the WSF approach to indexed for inflation. As provided for shows that Education Finance Act (EFA) the is more uniformly progressive, figure clearlyby the 1977 the 1959 indexed tax rate structure state allocates a minimum base dollar amount per pupil, incomes. It keeps tax rates extremely low for the lowest income especially at higher levels ofwhich encompasses the spending for the defined minimum educational program to individuals in the state. an average student. For FY09-2010, the base student state spending is projected to be $2,334 assuming enrollment of 691,816. EFA funds, however, differ Figure 5.5 also shows that the current tax system charges all income groups more in according to each district’s tax base, with poorerexceptionreceiving more income earner in the taxes than an indexed rate schedule. The only districts is the $5,000 money. table. As South Carolina income taxes continue to climb while the tax brackets remain 15 stagnant, the state becomes a relatively high-tax state. This has a negative impact on Ibid., 19.
16 17

Ibid., 20. Snell, 140-141.

198 18 14 18

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

manufacturing property tax inin the country. Inthe EFA alsopresent theforeffective property tax In addition to base student spending, Figure 5.8 we present effective property tax manufacturing property tax the country. In Figure 5.8 we providesthe additional funding rates data for Southeastern states, for comparison.for grade level, disability and other out of all calculated according to various weights adjusted The ranks given for the states are out of all rates data for Southeastern states, for comparison. The ranks given for the states are factors. 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on vocational valued atare Kindergartners, ‘net instance, ‘effective tax at 1.3are calculated based on property students $25 50 states. The for tax’ and are weighted rate’ times the base while property valued at $25 million ($12.5 million ininmachinery and equipment, $12.5Roza (2007), EFA can be thought weighted ($12.5 million Thus, as observed by Hassel and million inininventories, and $2.5 million at 1.29 the base. machinery and equipment, $12.5 million inventories, and $2.5 million inin fixtures). Notice that South Carolina’s effective crucial aspect, “weighted fundsis of as a weighted student funding model – except in one tax rate on industrial property is million fixtures). Notice that South Carolina’s effective tax rate on industrial property over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware isisfundingin follow 7.8 timesto districts, but not necessarily to schools.”18 Moreover, current EFA listed in over children higher than the most industry-friendly state, Delaware. (Delaware listed the figure because slightly more than half of total state funding – or about a quarter of overall only figure because it is the lowest-tax state.) the accounts for it is the lowest-tax state.) funding. Remaining state funds are subject to categorical requirements specified by the Education Improvement Act (EIA), restricted state grants, and lottery funds.19 Still, 5.8: Industrial Property Taxes in as the basis of states*, 2007 Figure 5.8: Industrial Property EFA can in Southeastern shifting the2007 Figure as Hassel and Roza argue, the Taxes serveSoutheasternstates*, majority of state education funding to a weighted student system. They explain how this reform could State Rank (of 50) Net Tax Effective Tax Rate State Rank (of 50) Net Tax Effective Tax Rate be implemented: South Carolina 11 $1,864,900 3.73% South Carolina $1,864,900 3.73% • � Expanding the Education Finance Act’s weighting system to include additional groups of Mississippi 44 $1,291,050 2.58% Mississippi $1,291,050 2.58% Texas Texas
students not currently weighted, namely low-income and gifted students;

66

$1,264,358 $1,264,358

2.53% 2.53%

• Tennessee 10 $1,033,544 specific student type into new or existing 2.07% 2.07% Tennessee 10 � Converting categorical funds intended$1,033,544 to serve a weights in EFA; 14 West Virginia $833,234 1.67% West Virginia 14 $833,234 1.67%
Louisiana 17 $783,407 1.57% EFA allocation; Louisiana 17 $783,407 • � Converting other categorical funds into per pupil funds within the 1.57% basic Georgia 20 $760,381 1.52% Georgia 20 $760,381 1.52%

• Florida 24 $677,683 1.36% 1.36% Florida 24 $677,683 new weighted amounts.20 1.11% Alabama 35 $533,776 Alabama 35 $533,776 1.11% Hassel and of categorical programs,0.98% concluding that only North CarolinaRoza identify three types $491,071 37 0.98% 37 $491,071 North Carolina funds dedicated to services not directly related to K-12 education (i.e., unusual transportation 0.65% Kentucky 47 $327,100 Kentucky 47 $327,100 0.65% needs) should remain categorical. Funds devoted to serving particular student populations Virginia 49 $241,498 0.48% 0.48% 49 shouldVirginia be converted to weights while funds tied$241,498 priorities (Hassel and Roza mention to other science education) should 50 added to the base pupil allocation. Under this model, only 8 be Delaware $238,840 0.48% Delaware 50 $238,840 0.48% percent of current categorical ofof Manufacturersremain as such (see Figure 10.4). funding would(2009) Source: National Association Manufacturers (2009) Source: National Association
Distributing funds (including those for public charter schools) on the basis of each child’s
* Taxes measured inin the states’ largest city only. * Taxes measured the states’ largest city only.

Importantly, South Carolina’s effective tax rate isisalmost 2.5 times greater than Importantly, South Carolina’s effective tax rate almost 2.5 times greater than Georgia’s tax, and almost 4 4 times greater than North Carolina’s. This puts South Carolina at a Georgia’s tax, and almost times greater than North Carolina’s. This puts South Carolina at a serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina has the highest tax inin the country on industrial property, it should be no surprise that it has has the highest tax the country on industrial property, it should be no surprise that it has one of the lowest per capita incomes and economic growth rates inin the country. one of the lowest per capita incomes and economic growth rates the country. Although it it is probably not critical that South Carolina set its tax rate to the lowest in Although is probably not critical that South Carolina set its tax rate to the lowest in the country, it itshould definitely make it itatatleast competitive for the Southeast. Since the country, should definitely make least competitive for the Southeast. Since Georgia’s rate isis effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate Georgia’s rate atataround 1 1percent might be sufficient totoattract more industry. Working to reduce the around percent might be sufficient attract more industry. Working to reduce the various taxes applied toto industry would seriously improve the state’s competitiveness. various taxes applied industry would seriously improve the state’s competitiveness. Such a a significant reduction in taxes on industrial property would obviously lead to a Such significant reduction in taxes on industrial property would obviously lead to a reduction inintax revenues on industrial property, atatleast initially. However, the overall reduction tax revenues on industrial property, least initially. However, the overall 18 Hassel andmay in factincrease once the growth rate in the state begins to pick up and more Roza, 7. revenue may in fact increase once the growth rate in the state begins to pick up and more revenue 19 Hassel andmoves intothat EIA funding is controlled the official tax restricted lowered, then the state industry moves report the state. Furthermore, ifif the categoricals;rates are General Funds, 26 the state industry Roza into the state. Furthermore, by 44 official tax rates are lowered, then
categoricals; and Lottery funds, 4 categoricals (7). 20 Ibid., 9.

Chapter 10: putting ChilDren EFORMS CHAPTER 5: SREGULATORY R first CHAPTER 8: PECIFIC TAX REFORM

199 13 15

Presumably the original intent of imposing a tax rate schedule with graduated Figure 10.4 marginal tax rates was to make the income tax progressive. However, what progressivity Demonstration of How Categorical to the zero tax on the first $2,630 of Pupil exists in the state’s income tax structure is due Funds Could Convert to Per income, and because of the graduated marginal Funds However, since the marginal tax rate tax rates. increases over such small steps in income, as shown in Figure 5.5, most of the progressivity occurs at lower income levels, not higher levels of income. At higher income levels, the average tax rate hardly increases at all. This nature of the current tax is directly contradictory to the goal of progressivity. So although on the surface it appears that the tax satisfies the vertical equity condition, it really does this only at the lower income levels reducing the wealth of these lowest income taxpayers, not the intended consequence.

Figure 5.5: South Carolina income tax: Current tax rates compared to inflation-indexed rates, 2009
Current Income Tax Rates/Brackets Taxable Income $5,000 $10,000 $15,000 $20,000 $30,000 $50,000 $75,000 Tax Amount $71 $290 $604 $954 $1,654 $3,054 $4,804 Average Tax Rate 1.42% 2.90% 4.03% 4.77% 5.51% 6.10% 6.41% Income Tax Rates/Brackets if 1959 Tax Schedule was Inflation Adjusted to 2009 Tax Amount $125 $250 $377 $527 $834 $1,695 $3,127 Average Tax Rate 2.5% 2.5% 2.51% 2.63% 2.78% 3.39% 4.17%

$100,000 of the $6,554 $4,877 6.56% 4.88% In light questions regarding equity raised above, it is important to emphasize that Hassel and Roza’s model merely converts the state’s existing Hassel 5.58% into weights $8,377 Source: categoricals $150,000 $10,054 6.70% and Roza and so does not change “priorities with regard to the student groups it wants to serve.”21 In $200,000 $13,554 $11,877 6.77% 5.94% other words, under the WSF reform what are now only implied weights would simply be converted into transparent, actual weights. For this reason, debates over how to fund WSF or Figure 5.5 also shows should average are beside for various incomes and taxes over how much each district what thecontributetax rates are the point. Federal and district under the current tax system in South Carolina. In essential change being to shows what the allocations would remain the same, with the most the right columns it also fund individual taxes andrather than categorical programs. Hassel and Roza explain: students, average tax rates would be if the 1959 tax tables were indexed for inflation. The figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especiallyisat higher levels ofmuch would not change as a result of this low forapproach to funding. It worth noting how incomes. It keeps tax rates extremely shift in the lowest income individuals in the state. weights are based on how much South Carolina currently spends to meet the … Since the new needs of different groups of the current tax system charges all income groups more in Figure 5.5 also shows thatstudents, the amount of funding dedicated to these groups would not change. The amount of state funding received by the individual districts would not taxes than an indexed rate schedule. The only exception is most $5,000 income earner in the change markedly, with the exception of a drop in funding for the districts that remain table. As South Carolina income taxes continue to climb while some tax brackets are now stagnant, the state becomes a relatively high-tax state. This has a negative impact on
21

Ibid., 10.

200 18 16 18

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

particularly successful winning competitive grants we present the effective property tax manufacturing property tax inin the country. In Figure 5.8 we present the effectivefor spending manufacturing property taxat the country. In Figure 5.8or obtaining reimbursementproperty tax on state-funded programs. Overall, the state’s The ranks given for the states are out22 rates data for Southeastern states, for comparison.fundingranks given for remain the are out of all rates data for Southeastern states, for comparison. The priorities would the states same. of all 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on property valued atat $25 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on property valued $25 million But simply transitioning to a weighted funding $12.5 million inininventories, and–$2.5 ($12.5 million million ($12.5million ininmachinery and equipment, formulamillion enough. The next and machinery and equipment, $12.5 is not inventories, and $2.5 politically fixtures). Notice step is to distribute these funds to schools, rather thanproperty 23 million inin fixtures). Notice that South Carolina’s effective tax rate on industrial districts.isis million more difficult – that South Carolina’s effective tax rate on industrial property We 7.8 examine this and the challenges in the next state, Delaware. (Delaware is listed in overshall times higher thanothermost industry-friendly section.Delaware. (Delaware is listed in over 7.8 times higher than the most industry-friendly state, the figure because it it is the lowest-tax state.) the figure because is the lowest-tax state.)

IMPLEMENTING WSF: QUESTIONS & POSSIBILITIES Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007 Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007
Perhaps the most striking aspect Netthe WSF reform in South Tax Rate is that the of Tax State Rank (of 50) Effective Carolina State Rank (of 50) Net Tax Effective Tax Rate policy has yet to be enacted. By all accounts, nearly every key stakeholder – from the South Carolina $1,864,900 3.73% South Carolina 1 $1,864,900 3.73% governor to members of the1General Assembly to the Education Department – believes WSF shouldMississippi be implemented in South Carolina. Yet$1,291,050 has not been2.58% regarding the a consensus reached Mississippi 44 $1,291,050 2.58% detailsTexas funding plan, with legislation (H 3724) that would have 2.53% WSF dying in of the enacted 2.53% Texas 66 $1,264,358 $1,264,358 committee during the 2009 session. In particular, questions remain regarding the following 10 $1,033,544 2.07% Tennessee 10 $1,033,544 four Tennessee Which categories of funds should be reallocated via2.07% issues: 1) the WSF formula?; 2) What West Virginia be assigned to different$833,234 of students?;1.67% weights should subgroups 3) Would districts or West Virginia 14 1.67% 14 $833,234 schools administer WSF distributions?; 4) How $783,407 affect funding? would WSF Louisiana 17 $783,407 1.57% Louisiana 17 1.57% Georgia 1.52% Georgia 20 $760,381 1.52% WHICH CATEGORICALS DOES20 STATE NEED? $760,381 THE Florida 24 $677,683 1.36% 1.36% Florida 24 $677,683 As indicated above, 35 Hassel and Roza argue that only 8 percent1.11% funding should of state Alabama $533,776 Alabama 35 $533,776 1.11% remain as categorical funding. They mention, in particular, unusual transportation costs as a North Carolina be 37 $491,071 0.98% 37 0.98% North could category thatCarolina retained. Other advocates$491,071 have suggested treating food service of WSF or pilot programs as categorical distributions. $327,100 In the experience of districts that have adopted 0.65% Kentucky 47 Kentucky 47 $327,100 0.65% WSF, Virginia the trend 49 been to shift as$241,498 however, has many possible to the WSF Virginia $241,498 categoricals as0.48% 0.48% 49 formula. Delaware 50 Delaware 50 $238,840 0.48% In Hawaii, for instance, the gradual$238,840 to a WSF0.48% transition mechanism has been Source: National Association ofof Manufacturers (2009) school officials provide input on whether Source: National Association Manufacturers (2009) accompanied by an annual assessment during which * Taxes measured inin the states’ largest city only. * Taxes measured the states’ largest city only. the reform is on track. Year after year, the key stakeholders have concluded that WSF is working and that additional categorical funds should be converted into discretionary Importantly, South Carolina’s effective tax rate isisalmost 2.5 times greater than Importantly, South Carolina’s effective tax rate almost 2.5 times greater than spending. tax,the course of times greater than North Carolina’s. This puts South Carolina at a In and almost 4 this review process, Hawaii has developed specific benchmarks Georgia’s tax, and almost 4 times greater than North Carolina’s. This puts South Carolina at a Georgia’s that must be met for a categorically funded program to be reallocated to the WSF distribution. serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina Similar guidelines for South Carolina would entail requiring that: has the highest tax inin the country on industrial property, it should be no surprise that it has has the highest tax the country on industrial property, it should be no surprise that it has one of the lowest per capita incomes and economic growth rates inin the country. one of the lowest per capita incomes and economic growth rates the country. 1) The funding in question must be provided to all schools; Although it it is probably not critical that South Carolina set its tax rate to the lowest in Although is probably not critical that South Carolina set its tax rate to the lowest in 2) The funding definitely make it all schools at a particular level Southeast. Since the country, it itshould must be provided to itatatleast competitive for the (i.e., all middle the country, should definitely make least competitive for the Southeast. Since schools); Georgia’s rate isis effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate Georgia’s rate 3) The funding must be able to be distributed equitably by the WSF formula; atataround 1 1percent might be sufficient totoattract more industry. Working to reduce the around percent might be sufficient attract more industry. Working to reduce 24 the The reallocation must provide various 4)taxes applied to industryactuallyseriouslyfor greater fundingcompetitiveness. taxes applied to industry would seriously improve the state’s flexibility for schools. various would improve the state’s competitiveness. Such a a significant reduction in taxes on industrial property would obviously lead to a Such significant reduction in taxes on industrial property would obviously lead to a reduction inintax revenues on industrial property, atatleast initially. However, the overall reduction tax revenues on industrial property, least initially. However, the overall 22 Ibid., 12.may in fact increase once the growth rate in the state begins to pick up and more revenue may in fact increase once the growth rate in the state begins to pick up and more revenue 23 Hassel andmoves into the state. system proposed the official tax state are lowered,children, but industry moves acknowledge, “The Furthermore, if thewould ensureratesmoney lowered, then the state industry Roza into the state. Furthermore, if here official tax rates are follows then the state
only to the district level” (14). 24 As adapted from Snell, 141.

Chapter 10: putting ChilDren EFORMS CHAPTER 5: SREGULATORY R first CHAPTER 8: PECIFIC TAX REFORM

201 13 17

Presumablytransportation and food service are atwo of the schedule with graduated tax rate categoricals that remain Currently, the original intent of imposing marginal tax control in Hawaii. Likewise, economies of scale may encourage similar policies under district rates was to make the income tax progressive. However, what progressivity exists in the state’s income tax structure to due tofunctions tax on the first $2,630 of income, in other locales. Still, even as regards is such the zero traditionally provided by school and because of can be given the option totax rates. these services from the district or to hire districts, schools the graduated marginal purchase However, since the marginal tax rate increasesprovider.25 small steps in income, as shown in Figure provided by theschool for its another over such In short, practically any service actually 5.5, most of a progressivity occurs atcan be accounted for underhigher levels of income.system. Accordingly, there the students lower income levels, not a comprehensive WSF At higher income levels, are average tax rate hardlythat cannotat all. This nature of the current tax is directlyto provide for very few categoricals increases be eliminated or, at least, reevaluated so as contradictory to theflexible funding. Thus evenalthough onof pressure from lobbyists and otherssatisfies the more goal of progressivity. So in the face the surface it appears that the tax to preserve vertical categoricals, advocates of WSF should tryat the lower income levelsthe state’s the certain equity condition, it really does this only to reallocate as many of reducing 74 wealth of these possible to the taxpayers, not theA realisticconsequence. categoricals as lowest income WSF formula.26 intended goal, as Hassel and Roza suggest, would be to reduce categoricals to less than 10 percent of per pupil expenditures. WHAT WEIGHTS SHOULD BE ASSIGNED?

Figure 5.5: South Carolina income tax: Current tax rates compared to inflation-indexed rates, 2009

A second question that has stymied WSF reform in South Carolina pertains to the different weights given to subgroups of students. Hassel and Income Tax Rates/Bracketsby 1959 Tax Roza resolve this question if specifically Current funding Tax These are their recommendations: Income levels. correlating the weights to current Schedule was Inflation Adjusted to Rates/Brackets 2009 Taxable Income $5,000 $10,000 $15,000 $20,000 $30,000 $50,000 $75,000 $100,000 $150,000 $200,000 Tax Amount $71 $290 $604 $954 $1,654 $3,054 $4,804 $6,554 $10,054 $13,554 Average Tax Rate 1.42% 2.90% 4.03% 4.77% 5.51% 6.10% 6.41% 6.56% 6.70% 6.77% Tax Amount $125 $250 $377 $527 $834 $1,695 $3,127 $4,877 $8,377 $11,877 Average Tax Rate 2.5% 2.5% 2.51% 2.63% 2.78% 3.39% 4.17% 4.88% 5.58% 5.94%

Figure 5.5 also shows what the average tax rates are for various incomes and taxes under the current tax system in South Carolina. In the right columns it also shows what the taxes and average tax rates would be if the 1959 tax tables were indexed for inflation. The figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income individuals in the state. 25 Cotton Figure touches upon such questions in his report on scholarship tax credits. See Lindsay, Cotton, in Lindsay 5.5 also shows that the current tax system charges all income groups more Fiscal Impactan the 2005 Universal Scholarship Tax Credit Proposal, is the Carolina Policy Council (Marchthe taxes than of indexed rate schedule. The only exception South $5,000 income earner in 2005). table. As South Carolina income taxes continue to climb varying special interests that are likely while the tax brackets remain 26 Hassel and Roza caution: “Each categorical program has numerous and stagnant, the specificbecomes a relatively high-tax state legislators responsible for a particular on state pots of money. … In some cases, the state. This has a negative impact to try and protect
allocation could be its biggest defenders” (16).

202 18 18

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

Figure 10.5: Hassel & country. Figure 5.8 Weighting System After manufacturing property tax inin the country. CombinedWeighting effective property tax manufacturing property tax & Roza’s Combined we present the System After tax Figure 10.5 Hassel the Roza’sInIn Figure 5.8 we present the effective property rates data for Southeastern Shiftingcomparison. The ranks given for the states are out of all states, for comparison. The ranks given rates data for Southeastern states, for Categoricals into EFA for the states are out of all Shifting tax rate’ are calculated based 50 states. The ‘net tax’ and ‘effective Categoricals into EFA on property valued atat $25 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on property valued $25 million ($12.5 million ininmachinery and equipment, $12.5 million inininventories, and $2.5 million ($12.5 million machinery System inventories, Current and equipment, $12.5 million New System and $2.5 Current System New System million inin fixtures). Notice that South Carolina’s effective tax rate on industrial property is million fixtures). Notice that South Carolina’s effective tax rate on industrial property is Existing over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware isis listed in over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware listed in Existing categoricals the figure because it it is the lowest-tax state.) the figure because is the lowest-tax state.) categoricals Existing EFA if delivered Existing EFA if delivered Combined Combined (2006-07) as a weighted (2006-07) as a weighted Figure 5.8: Industrial Property student in Southeastern states*, 2007 Taxes Figure 5.8: Industrial Propertystudent in Southeastern states*, 2007 Taxes allocation allocation State Rank (of 50) Net Tax State Rank (of 50) Net Tax Effective Tax Rate % ofEffective Tax Rate New per % of Student Per New % of New per % of pupil State South Carolina $1,864,900 State 3.73% Student Carolina Per 1 1Weight South $1,864,900 3.73% New Characteristic Pupil Per Pupil weight State Weight State pupil Funds Characteristic Mississippi $1,291,050 Funds allocation weight 2.58% Mississippi Pupil 4 4 $1,291,050 Funds allocation 2.58% Funds $1,148* $3,515 1.00 73% All students $2,367 6 6 1.00 2.53% Texas $1,264,358 73% Texas $1,264,358 2.53% All Students $2,367 1.00 $1,148* 73% $3,515 1.00 73% Tennessee $1,033,544 2.07% 2.07% Tennessee 10 $1,033,544 1% Kindergarten $710 10 1.30 * $710 1.20 1% Kindergarten $710 1.30 * 1% $710 1.20 1% $833,234 1.67% West Virginia 14 $833,234 2% 1.67% $568 1.16 2% Primary West Virginia $568 14 1.24 * Primary Louisiana $568 17 1.24 *$783,407 $568 2% $783,407 2% 1.57% Louisiana 17 1.57% 1.16 High School $592 1.25 * 1% $592 1.17 1% Georgia $760,381 1% 1.52% Georgia 20 1.52% 1.17 High School $592 20 1.25 *$760,381 $592 1% Poverty (includes Florida $677,683 1.36% 1.36% Florida 24 $677,683 9% Poverty (includes $650 1.18 9% funds intended for None 24 none $650 fundsperformance) None 35 none $650 $650 9% 1.11% Alabama $533,776 9% Alabama 35 $533,776 1.11% 1.18 low intended for low performance)Carolina North Carolina None 37 none $491,071 0.98% 37 $491,071 2% 0.98% North Gifted (includes AP) $571 $571 1.16 2% Gifted (includes AP) None 47 none $571 $571 2% 0.65% Kentucky $327,100 2% Kentucky 47 $327,100 0.65% 1.16 Vocational Education $686 1.29 $448 1% $1,134 1.32 1% Virginia $241,498 1% 0.48% 0.48% student 49 on $241,498 VocationalVirginia Education $686 49 1.29 $448 $1,134 on 1.32 1% Various Special Depends Depends Various Special Depends EducationDelaware Categories student 50 on disability disability $160 11% Delaware 50 $238,840 11% Depends on student 0.48% $238,840 0.48% Education Categories Association ofof Manufacturers$160 student disability disability ≈11% ≈11% Source: National Association Manufacturers (2009) Source: National (2009)
* Taxes measured werestates’ largest city only. * Taxes measured the states’ largest out by *Existing categoricalsinin thenot separated city only. the grade targeted, but this can be done and would yield different weights by grade level.

Importantly, South Carolina’s effective tax rate isisalmost 2.5 times greater than Importantly, South Carolina’s effective tax rate almost 2.5 times greater than Georgia’s tax, and and Roza’stimes greater than best strategy would be puts South Carolina at a Georgia’sHassel almost 4 4 work shows, theNorth Carolina’s. This puts retain, Carolina at a As tax, and almost times greater than North Carolina’s. This to South to the extent serious disadvantage, inin terms levels ability to attract andhas inindustry. Undoubtedly,Carolina serious disadvantage, funding of its ability to attract and keep industry. Since South Carolina possible, the current terms of its the state already keep place. Since South some has the highest tax inin the country onprocess asproperty, itfor increasing funding for certain has the highest tax the country on industrial property, should be no surprise that it has lawmakers will want to use the WSF industrial a vehicle it should be no surprise that it has one of the programs. Such considerations,economic growth rates inin the country. one of the lowest per capita incomes and economic not essential the country. groups or lowest per capita incomes and though, aregrowth rates to the WSF reform. Although it it is probably not critical that South Carolina set its tax rate to the lowest in Although is probably not critical that South Carolina set its tax rate to the lowest in the country, it itshouldCHOOLS CONTROL FUNDING? competitive for the Southeast. Since the country, definitely make least SHOULD DISTRICTS shoulddefinitely make it itatatleast competitive for the Southeast. Since OR S Georgia’s rate isis effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate Georgia’s rate atataround thirdpercentmight be about WSF toattract the extent to which districts reduce the around1 1percent might besufficient toregards more industry. Working to or schools attract more industry. Working to reduce the A concern voiced sufficient various taxes applied toto industry would seriously improve the state’s competitiveness. reform industry would seriously improve the state’s competitiveness. various taxes applied distributions. The key here is patience. Ideally, the WSF should oversee WSF Such a a significant reduction in education dollars to create individually lead to a Such significant reduction in taxes on industrial property would obviously lead to empowers individual schools to use taxes on industrial property would obviously tailored a reduction inintax for each student.industrialproperty, atatleast initially. However, schooloverall reduction plans revenues on industrial property, tax revenues on This model, however, may not work for every the overall least initially. However, the – or, instruction revenue may without increase once a the growth rateinin the state which to pick up and more the state begins to pick up fact increase for the growth rate more atrevenuenot ininfact allowing once transitional period during begins principals andother least, may industry moves into the state. Furthermore, ifif the official and rates are lowered, then the state the official tax rates are lowered, then industry moves into the state. Furthermore, management tax budgetary training. the state school-level administrators receive additional

Chapter 10: putting ChilDren EFORMS CHAPTER 5: SREGULATORY R first CHAPTER 8: PECIFIC TAX REFORM

203 13 19

Presumably2008 hearings on WSF before the South Carolina House, withDepartment During the the original intent of imposing a tax rate schedule the graduated marginal tax rates was toindicated it income tax progressive. However, going progressivity of Education specifically make the did not want student-based funds what to individual exists in “The existing district-based funding method should beon the first $2,630 of income, schools. the state’s income tax structure is due to the zero tax ‘preserved,’’’ asserted Sandy and because of the graduated marginal for policy and legislation, “even marginal tax rate Smith, department deputy superintendent tax rates. However, since the if the total money increases is based onsmall steps in income, as shown in Figure 5.5, most of the progressivity allocated over such a stricter per-student formula.”27 occurs The education department’s higher levels of income. At higher income levels, the at lower income levels, not opposition to expanding local control over education averageis also shared by district administrators who may fear, not only directly contradictory dollars tax rate hardly increases at all. This nature of the current tax is a loss of control, but to the goal of progressivity. So although on the surface it appears officials always have the also the loss of their jobs. As noted elsewhere in this book, public that the tax satisfies vertical equity condition, it really does their only at the lower income levels reducing the incentive to expand their budgets and this control. By reducing reliance on categorical wealth ofWSF will eliminate the need for not the intended consequence.positions. This is to be funding, these lowest income taxpayers, certain district administrative expected as more funds are allocated to instruction. Weighted student funding, however, is not just about eliminating needless Figure 5.5: South Carolina income tax: Current tax rates compared to administrative burdens. The most important element of WSF is that it enables individual inflation-indexed serve their students. To use a free market schools to be creative and innovative in how they rates, 2009 term, WSF encourages schools to be entrepreneurial in using their resources as wisely as possible to produce the best possible outcomes. Income Tax Rates/Brackets if 1959 Tax Current report Tax Thus the Fund the Child Income makes it clear that ifwas Inflation Adjusted to for Schedule WSF is the mechanism Rates/Brackets improving school funding, the success of the WSF reform lies in the hands of the individual 2009 schools receiving this funding. “Simply stated, for WSF to be effective, principals must be Tax Tax Average Tax Rate 28 given authority over a significant portion Tax Rate Average of the overall funding pool.” Taxable Income Amount Amount Toward this end, WSF should be complemented by reforms that encourage principals $5,000 $71 $125 1.42% 2.5% to be more than administrators, but to be leaders. Accordingly, the state should also look at providing training and $290 mentoring opportunities for principals. No doubt, some principals fear $10,000 $250 2.90% 2.5% the changes WSF will bring. But a recent study by the American Institutes for Research finds $15,000 $604 $377 4.03% 2.51% that teachers and administrators want greater autonomy over spending decisions and so 29 $20,000 $954 2.63% support WSF by wide margins. 4.77% Likewise, even $527 National Education Association the acknowledges “WSF $1,654 promise,” especially $834a means of addressing funding shows as $30,000 5.51% 2.78% inequities.30 The reality is that principals and teachers are already being held accountable for $50,000 $3,054 $1,695 6.10% 3.39% school performance. Giving school leaders responsibility over funding programs they know $75,000 $4,804 $3,127 6.41% 4.17% will work for their students is essential to helping them meet these expectations. Although and district administrators are $4,877 still reluctant to relinquish control over $100,000 state$6,554 6.56% 4.88% funding to individual schools, recent budget cuts have encouraged these groups to $8,377 $150,000 $10,054 6.70% 5.58% increasingly call for flexible funding, which would mean reducing categorical funding $200,000 $13,554 $11,877 6.77% 5.94% restrictions. During the 2009 session, at least 50 of South Carolina’s 85 school districts passed a resolution declaring that: Figure 5.5 also shows what the average tax rates are for various incomes and taxes Local funding decisions South Carolina. support the unique it also and what the under the current tax system in must be made toIn the right columns qualitiesshowschallenges presented by each student, classroom and school; and taxes and average tax rates would be if the 1959 tax tables were indexed for inflation. The figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income individuals in the state. 27 “Waffling on Student Funding Reform,” the Voice for tax system charges all income groups more in Figure 5.5 also shows that The current School Choice, South Carolinians for Responsible Government (June 26, 2009); available at: http://www.voiceforschoolchoice.com/2009/06/26/school-funding-the taxes than an indexed rate schedule. The only exception is the $5,000 income earner in reform-in-the-news-yet-again/. table. the Child, 35. Carolina income taxes continue to climb while the tax brackets remain As South 28 Fund 29 stagnant, the etstate Tale of Two a relatively high-tax state.Researchhas a negative impact on Jay Chambers al., A becomes Districts, American Institutes for This (October 2008); available at:
http://www.air.org/news/documents/A%20Tale%20of%20Two%20Districts_Final.pdf. 30 Fund the Child, 30.

204 18 20 18

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

Under property tax in the country. In Figure 5.8 flexibility in effective property tax manufacturingcurrent state tax inschool districts Figure 5.8 we present thetheeffective property tax manufacturing property law, the country. In have limited we present the expenditure of most funds Southeastern states, for Department of Education, which impedes our out of all rates data for disbursed through the for comparison. The ranks given for the states are out of all rates data for Southeastern states, Statecomparison. The ranks given for the states areability to focus dwindling and ‘effective tax rate’ 31 50 states. The ‘net tax’resources in the classroom.are calculated based on property valued atat $25 50 states. The ‘net tax’ and ‘effective tax rate’ are calculated based on property valued $25 million ($12.5 million ininmachinery and equipment, $12.5 million inininventories, and $2.5 million ($12.5 million machinery and equipment, $12.5 million inventories, and $2.5 million This fixtures). Notice that South Carolina’s effective tax rate on industrial property is in fixtures). Notice that South Carolina’s effective tax rate on industrial property is million in resolution was also supported by the South Carolina School Boards Association (SCSBA), times higher than the mostCook, stated that state, Delaware. (Delaware listed in over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware isis listed in over 7.8 whose president, Gerald industry-friendly current funding mechanisms hinder innovationbecause it it is the lowest-tax state.) the figure and accountability. Said Cook: the figure because is the lowest-tax state.) Freedom to innovate, coupled with accountability, is an approach worth considering for all public schools. Yet now, while charter schools are free to pursue initiatives that they consider Figure 5.8: –Industrial Property Taxes in Southeastern states*, 2007 Figure 5.8: and while public officials across the state, including the Governor, applaud that promising Industrial Property Taxes in Southeastern states*, 2007 freedom – local Rank (of governed by localTax schools, 50) to be constrained State Net Tax Effective Tax Rate by State Rank (of 50) Net boards, continue Effective Tax Rate a host of legislative mandates that prevent them from using money in the ways that make the most South Carolina communities. Their hands $1,864,900 Many of the state’s mandates – teacher 11 $1,864,900 3.73% South Carolina 3.73% sense for their are tied. … training, Mississippi summer school, character education, career counselors, school nurses and 44 $1,291,050 2.58% Mississippi $1,291,050 2.58% assessments, among many other functions – are not just good but necessary to support the 2.53% Texas 66 $1,264,358 Texas mission. We want those things for all our children. But how much sense does it make $1,264,358 2.53% school’s 32 Tennesseethem if it means10 10removing a teacher from a classroom? $1,033,544 2.07% 2.07% Tennessee $1,033,544 to fund

West Virginia 14 $833,234 1.67% West Virginia 14 $833,234 1.67% Thus, it would seem that resistance to school-level funding is eroding. In addition, Louisiana 17 $783,407 1.57% 17 $783,407 HasselLouisiana recommend several strategies that could be used to1.57% and Roza facilitate the gradual Georgia 20 1.52% Georgia 20 $760,381 1.52% transition from a district-centric funding model$760,381 to a student-centered approach: Florida 24 $677,683 1.36% 1.36% Florida 24 $677,683 Alabama Alabama THEY GENERATE North Carolina North Carolina 35 35 37 37 $533,776 $533,776 $491,071 $491,071 1.11% 1.11% 0.98% 0.98%

REQUIRE THAT FUNDS BE SPENT ON SCHOOLS ACCORDING TO HOW MUCH STUDENT REVENUE

Kentucky system be spent proportionately $327,100 47 Kentucky 47 $327,100 0.65% funding on that child’s school in0.65% two ways. Funds one of could of0.48% working at the teachers Virginia be spent directly;49 example, by paying salary and benefits 0.48% 49for $241,498 Virginia $241,498 school. Or funds could be spent indirectly on shared or centrally provided services that Delaware benefit the school in an equitable fashion; for example,0.48% 50 $238,840 Delaware 50 $238,840 0.48% tangibly by paying for specialist
operations could be accounted for in per pupil terms to each school to achieve full transparency.

South Carolina should require that money generated by a student via the new weighted

Source: National Association multiple schools. (2009) costs for reasonable leadership and district Source: National Association of Manufacturers Even instructors who serve of Manufacturers (2009) * Taxes measured inin the states’ largest city only. * Taxes measured the states’ largest city only.

Importantly, South Carolina’s effective tax rate isisalmost 2.5 times greater than Importantly, South Carolina’s effective tax rate almost 2.5 times greater than Georgia’s tax, and almost 4 4REPORTING OFthan North Carolina’s. This puts South Carolina atat a Georgia’s tax, TRANSPARENTtimes greater HOW FUNDS ARE SPENT AT THE SCHOOL LEVEL REQUIRE and almost times greater than North Carolina’s. This puts South Carolina a serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina has the In highest taxcontinuing to follow and use theproperty,SC financialbe no surprise that it has highest tax the country on industrial property, should be no surprise that it has has the addition to inin the country on industrial existing it it should accounting requirements, one of the lowest per capita incomes and report publicly (a) the amountthe country. ‘generated’ by one ofeach lowest per capita incomes to economic growth rates inin of funding the district should be required and economic growth rates the country. each of itsitschools, based not critical that South Carolina set itsthe rate to the lowest in Although it is probably oncriticalstudent populations; and (b) tax amount of resourcesin Although is probably not their that South Carolina set its tax rate to the lowest devoted toshould definitely make it itInatleast competitive for the Southeast. schoolthe the country, it it each school by student type. at addition,competitive for make Southeast.Since the country, should definitely make least 33 state should the available Since level expenditure reports through the use of In$ite and is just under percent, rate Georgia’s rate isis effectively 1.52 percent and North Carolina’s is justpossible1 for citizens rate Georgia’s rate effectively 1.52 percent and North Carolina’smake it under 1 percent, a a to ‘query’ percent financial sufficient atataround 1 1percent might be sufficient totoattract obtain additional information. toreduce the around the onlinemight be information system to more industry. Working to reduce the attract more industry. Working various taxes applied toto industry would seriously improve the state’s competitiveness. various taxes applied industry would seriously improve the state’s competitiveness. 31 Such a significant reduction in taxes on industrial property would obviously lead to a A sampleSuch a significant reduction in taxes on industrial property would obviously lead to a resolution is available at: http://www.scsba.org/advocacy_grassroots.htm. 32 reduction inintax revenues schoolsindustrialproperty, atatleast initially. However, 2009); overall reduction tax Carolina on need funding flexibility least initially. However, the Cook, Gerald, “South revenueson industrial property, now,” Daily Journal (February 9, the overall available at: may in factincrease once the growth rate in the state begins to pick up and more http://www.upstatetoday.com/news/2009/feb/09/south-carolina-schools-need-funding-flexibilityrevenue may in fact increase once the growth rate in the state begins to pick up and more revenue no/. industry moves into the state. Furthermore, ifif the official tax rates are lowered, then the state 33 industry moves into the state. Furthermore, the official tax rates are lowered, then the state
In$ite is a financial model used by school districts in South Carolina to collect and analyze data on education spending.

Chapter 10: putting ChilDren EFORMS CHAPTER 5: SREGULATORY R first CHAPTER 8: PECIFIC TAX REFORM

205 13 21

Presumably the original intent of imposing a tax rate schedule with graduated E tax rates was to make the income tax progressive. However, what marginalNCOURAGE RESPONSIBLE MOVES TOWARD SCHOOL-BASED FUNDING CONTROL progressivity exists in the state’s income tax structure is due to the zero tax on the first $2,630 of income, One strategy would be to marginal tax rates. However, financial marginal tax rate and because of the graduatedplace schools into tiers of increasingsince the independence, based on schools’ demonstrated in income, as shown in Figure 5.5, most of the progressivity increases over such small stepscapacity to handle budget control. All schools could immediately be empowered to develop draft budgets linked to their annual school improvement plans, occurs at lower income levels, not higher levels of income. At higher income levels, the submitting these for approval to their local school boards. Schools could apply to the local averageschool board for increases at all. This nature of the current tax is directly contradictory tax rate hardly greater levels of school-level financial independence after demonstrating to the goal of progressivity. out the responsibility. surface it appears that appeals process to the their capacity to carry So although on the State oversight, and an the tax satisfies the verticalstate board of education, would ensure that districts grant financial independence to schools equity condition, it really does this only at the lower income levels reducing the wealth of these lowest income taxpayers, not the intended consequence. that deserve it.34 Needless to say, Carolina resistance to WSF can be tax rates compared to Figure 5.5: South institutional income tax: Current overcome. Currently, WSF is being used in 15 major school districts across the country, including New York City, inflation-indexed rates, 2009 Houston, San Francisco, Baltimore and the entire state of Hawaii. If decentralizing school funding can work in these places, there is no reason it cannot be successful in South Carolina.35 Income Tax Rates/Brackets if 1959 Tax Current Income Tax Schedule was Inflation Adjusted to Rates/Brackets HOW WOULD WSF AFFECT STATE FUNDING? 2009 Tax Tax Average Tax Rate Unfortunately, questions Averageto funding WSF are perhaps most responsible for thus related Tax Rate Taxable Income Amount Amount far preventing the passage of this reform in South Carolina. This is ironic given that, as $5,000 $125 1.42% discussed above, WSF $71 would not alter current funding priorities. Total2.5% spending on state education would remain the same under the WSF model, as would the proportion of local $10,000 $290 $250 2.90% 2.5% contributions. Still, it should come as no surprise that education officials stuck in the mindset $15,000 $604 $377 4.03% 2.51% of assuming that more money translates into higher student achievement have sought to $954 4.77% expand$20,000 weights to insure that every dollar – $527more – will be2.63%on initiatives the WSF and spent they support. The best strategy for 5.51% countering such$834 tactics is to make any WSF reform $30,000 $1,654 2.78% revenue neutral. In itself, shifting to a WSF model does not require increasing or decreasing $50,000 $3,054 $1,695 6.10% 3.39% overall education funding. Thus debates over such funding should not be used as an excuse to $75,000 $4,804 $3,127 6.41% 4.17% sidetrack WSF. Another $100,000 obstacle impeding WSF reform concerns South Carolina’s longstanding $6,554 $4,877 6.56% 4.88% debate$150,000 over equitable $10,054 On average, the state provides 70 percent of the total base cost funding. $8,377 6.70% 5.58% of EFA funding, with districts responsible for the remainder.36 District contributions, $200,000 $13,554 $11,877 6.77% 5.94% however, vary greatly, ranging from $1,733 for Dillon 2 to $12,157 for Beaufort. South Carolina arguably does a fair job of allocating state and federal dollars to its poorest Figure 5.5There shows what the average taxas Dillon District 2, but it is noteworthy districts. also are some exceptions, such rates are for various incomes and taxes that counties like Allendale and Lee are among the top columns it also state funding. under the current tax system in South Carolina. In the right five in terms ofshows what the Likewise, among tax rates poorest districts, total per pupil were indexed for inflation. The taxes and averagethe state’s would be if the 1959 tax tables funding usually approximates, if not exceeds, shows that the 1959 indexed tax rate structure if not a complete progressive, figure clearly the state average. This is to say that the EFA, is more uniformly success, has certainly helped close the of incomes. It keeps tax rates extremely low poorest districts. especially at higher levelsfunding gap between the state’s wealthiest andfor the lowest income individuals in the state. Figure 5.5 also shows that the current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the 34 Hassel and Roza, 4, 15. table.American Institutes for Research report mentioned above provides useful insights taxhow two veryremain As South Carolina income taxes continue to climb while the on brackets diverse 35 The stagnant, San Franciscobecomes a – obtained “buy in” from state. This has the negative impact on localities – the state and Oakland relatively high-tax key stakeholders at a district, school and
parental level. 36 Recent budget cuts have somewhat reduced the state contribution for FY09-2010.

206 18 22 18

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

manufacturing property tax inin the country. In Figure 5.8 we present the effective property in Indeed, property tax the country. In Figure 5.8 we present the effective property tax manufacturingif the experience of other districts across the country holds true, schoolstax rates data for Southeastern states, for comparison. Again,ranksis because the states are out of all every district in the state will benefit from WSF. The ranks given for the states not out of all rates data for Southeastern states, for comparison. The this given for WSF is are based on 50 states. The ‘net tax’ and ‘effective tax rate’ are calculatedwho most property valued atat $25 geography, The ‘net tax’ dollars on helping those students based on need it, regardless of 50 states. but focuses and ‘effective tax rate’ are calculated based on property valued $25 millionthey live. In so doing, WSF results equipment, $12.5 million inininventories, andfunds where ($12.5 million ininmachinery and in a more equitable million million ($12.5 million machinery and equipment, $12.5 distribution of education $2.5 inventories, and $2.5 million inin even within thethat South Carolina’s effective tax torate on industrial property is for schoolsfixtures). Notice sameSouth Carolina’s effective tax implementing WSF in the million fixtures). Notice that district. For example, prior rate on industrial property is over 7.8 times higher than the most industry-friendly state,were funded(Delaware isis listed in Cincinnati times higher than the most industry-friendly state, Delaware. within 10 percent of over 7.8 Public School District less than half of schools Delaware. (Delaware listed in the figure because it it with lowest-tax state.) thedistrict because isis thealowest-tax state.) figure average, the per pupil disparity of $6,000 between the highest and lowest funded schools. After passing a robust WSF reform, these inequities were minimized as every school received the weighted average necessary to fund its unique student population. “On average, schools gained or lostProperty Taxes in Southeastern states*, 2007 Figure 5.8: Industrial $266 per-pupil – 4.2 in Southeastern states*,budget,” Figure 5.8: Industrial Property Taxes percent of the average school 2007 observes the Fund the Child report. “The largest gain was $730,881 – a 16.8 percent increase State Rank (of 50) Net Tax State Net Tax Effective Tax Rate in that school’s originalRank (of 50) largest loss was $595,316Effective Tax Rate decrease in budget. The – a 16.4 percent 37 South Carolina 11 $1,864,900 3.73% South original $1,864,900 3.73% that school’sCarolina budget.” By distributing education dollars in $1,291,050more consistent2.58%the free market, a$1,291,050 manner with Mississippi 44 2.58% Mississippi WSF will result in lower education costs for all taxpayers. Most important, WSF shifts the 2.53% Texas 66 $1,264,358 Texas $1,264,358 2.53% emphasis of education funding away from inputs, such as district-level funding, to results –
38 Tennessee 10 2.07% Tennessee $1,033,544 namely student achievement.10 In turn, WSF$1,033,544 brings accountability and 2.07% transparency to public schoolWest Virginia funding, helping insure education dollars$833,234 used as efficiently as possible. are being West Virginia 14 $833,234 1.67% 14 1.67% Louisiana 17 $783,407 1.57% Louisiana 17 $783,407 1.57%

Georgia Georgia Florida Florida Alabama Alabama North Carolina North Carolina Kentucky Kentucky Virginia Virginia Delaware Delaware

20 20 24 24 35 35 37 37 47 47 49 49 50 50

$760,381 $760,381 $677,683 $677,683 $533,776 $533,776 $491,071 $491,071 $327,100 $327,100 $241,498 $241,498 $238,840 $238,840

1.52% 1.52% 1.36% 1.36% 1.11% 1.11% 0.98% 0.98% 0.65% 0.65% 0.48% 0.48% 0.48% 0.48%

Source: National Association ofof Manufacturers (2009) Source: National Association Manufacturers (2009) * Taxes measured inin the states’ largest city only. * Taxes measured the states’ largest city only.

Importantly, South Carolina’s effective tax rate isisalmost 2.5 times greater than Importantly, South Carolina’s effective tax rate almost 2.5 times greater than Georgia’s tax, and almost 4 4 times greater than North Carolina’s. This puts South Carolina at a Georgia’s tax, and almost times greater than North Carolina’s. This puts South Carolina at a serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina has the highest tax inin the country on industrial property, it should be no surprise that it has has the highest tax the country on industrial property, it should be no surprise that it has one of the lowest per capita incomes and economic growth rates inin the country. one of the lowest per capita incomes and economic growth rates the country. Although it it is probably not critical that South Carolina set its tax rate to the lowest in Although is probably not critical that South Carolina set its tax rate to the lowest in the country, it itshould definitely make it itatatleast competitive for the Southeast. Since the country, should definitely make least competitive for the Southeast. Since Georgia’s rate isis effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate Georgia’s rate atataround 1 1percent might be sufficient totoattract more industry. Working to reduce the around percent might be sufficient attract more industry. Working to reduce the various taxes applied toto industry would seriously improve the state’s competitiveness. various taxes applied industry would seriously improve the state’s competitiveness. 37 Such a 10, 47. Fund the Such a significant reduction in taxes on industrial property would obviously lead to a Child, significant reduction in taxes on industrial property would obviously lead to a 38 reduction inintax revenues on tied to income per se, but toatleast performance. Hassel and Roza overall reduction tax should not on industrial property, least initially. However, the overall Accordingly, weights revenues be industrial property, at student initially. However, the wonder if revenue mayperformance will provide athe growth rate for underperforming schools (17).up and more weighting low in fact increase once perverse incentive in the state begins to pick WSFand more revenue may in fact increase once the growth rate in the state begins to pick up reforms inindustry moves into the to have overcome thisifif the by weighting bothare performancethenhigh state Baltimore, however, the state. Furthermore, the official tax rates are lowered, and the industry moves intoseemed state. Furthermore, obstacleofficial tax rateslow lowered, then the state
performance, with the former pot of money gradually being reduced in favor of the latter. The result is that persistently underperforming schools are gradually given less fiscal independence.

Chapter 10: putting ChilDren EFORMS CHAPTER 5: SREGULATORY R first CHAPTER 8: PECIFIC TAX REFORM Presumably CONCLUSION

207 13 23

the original intent of imposing a tax rate schedule with graduated marginal tax rates was to make the income tax progressive. However, what progressivity exists in thebegan this chapter by indicating that one of thetax on to unleashing capitalism in We state’s income tax structure is due to the zero keys the first $2,630 of income, and because of is reforming themarginalschool system. Capitalism properly refers to much South Carolina the graduated public tax rates. However, since the marginal tax rate increases overeconomic system. in income, asin the United States, the culture of progressivity more than an such small steps As practiced shown in Figure 5.5, most of the capitalism is occurs at puts individuals first in the sense that of prizes individual liberty and personal one that lower income levels, not higher levels it income. At higher income levels, the average tax rate hardly the most important benefit of WSFcurrent it brings these contradictory responsibility. Perhaps increases at all. This nature of the is that tax is directly values to life to the public school system. First, WSF empowerssurfaceadministrators tothe tax satisfies the in the goal of progressivity. So although on the local it appears that look for innovative vertical serve their students. As such, it bringsonly atfore educational leaders, rather than just ways to equity condition, it really does this to the the lower income levels reducing the wealth of these lowest income taxpayers, not the intended consequence. among teachers and educational managers. Second, WSF encourages entrepreneurial thinking other staff members, who are free to develop new strategies aimed at helping students learn. Figure 5.5: South Carolina that WSF could even foster rates compared to In addition, there is some evidenceincome tax: Current tax an entrepreneurial spirit 39 among students themselves.inflation-indexed rates, 2009 Apart from the benefits it brings to individual schools, WSF is also important as a counter to the centralizing and bureaucratic forces that have plagued, not just our state’s schools, but our state’s economy. These forces claimIncome Tax Rates/Brackets if 1959 Tax the government can do things better than Current Income Tax the free market, thereby suggesting the average citizenSchedule was Inflation Adjusted to it be cannot really be trusted – whether Rates/Brackets 2009 to run a business or to decide upon the best use of education dollars. By contrast, weighted student funding uses those values – liberty, responsibility and innovation – consistent with a Tax Tax Average Tax Rate Taxable economy to empower local Tax Rate free marketIncome Amount Averageschools to create the conditions necessary for student Amount achievement. In doing so, WSF refocuses questions about education funding away from $5,000 $71 $125 1.42% 2.5% debates regarding administrative categories and back toward its primary goal: helping $10,000 $290 $250 2.90% 2.5% individual students succeed. $15,000 $604 $377 4.03% 2.51% $20,000 $30,000 $50,000 $75,000 $100,000 $150,000 $200,000 $954 $1,654 $3,054 $4,804 $6,554 $10,054 $13,554 4.77% 5.51% 6.10% 6.41% 6.56% 6.70% 6.77% $527 $834 $1,695 $3,127 $4,877 $8,377 $11,877 2.63% 2.78% 3.39% 4.17% 4.88% 5.58% 5.94%

Figure 5.5 also shows what the average tax rates are for various incomes and taxes under the current tax system in South Carolina. In the right columns it also shows what the taxes and average tax rates would be if the 1959 tax tables were indexed for inflation. The figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income individuals in the state. Figure 5.5 also shows that the current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the table. As South Carolina income taxes continue to climb while the tax brackets remain stagnant, the state becomes a relatively high-tax state. This has a negative impact on
39

See Larson, Sven, How School Choice Can Create Jobs for South Carolina, South Carolina Policy Council (October 2009).

208 18 24

UNLEASHING CAPITALISM

manufacturing property tax in the country. In Figure 5.8 we present the effective property tax REFERENCES rates data for Southeastern states, for comparison. The ranks given for the states are out of all 50 states. The ‘net tax’ andA Tale of Two rate’ are calculated based on property valued at $25 Chambers, Jay et al. 2008. ‘effective tax Districts. Washington, D.C.: American million Institutes for Research. ($12.5 million in machinery and equipment, $12.5 million in inventories, and $2.5 millionGerald. 2009. NoticeCarolina Schools Need Funding Flexibility Now. Daily property is Cook, in fixtures). South that South Carolina’s effective tax rate on industrial over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware is listed in Journal. February 9. the figure Andrew.it2005. lowest-tax state.) Context. Columbia, SC: South Carolina Policy Coulson, because is the Achievement in Council. Fund the Child: Tackling Inequity & Antiquity in School Finance. 2006. Washington, D.C.: Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007 Thomas B. Fordham Institute. Hall, Joshua. The Dilemma of School Finance Reform. Journal of Social, Political, and State Rank (of 50) Net Tax Effective Tax Rate Economic Studies 31(3): 175-190. South Carolina 1 $1,864,900 3.73% Hassel, Bryan and Marguerite Roza. 2007. Funding the Child: Getting Results in South Mississippi through Weighted Student Funding. Columbia, 2.58% Carolina: South 4 $1,291,050 Carolina South Carolina Policy Council with the Thomas B. Fordham Foundation. 2.53% Texas 6 $1,264,358 Hayek, F.A. 1945. The Use of Knowledge in Society. American Economic Review 35(4): Tennessee 10 $1,033,544 2.07% 519-530. West Virginia $833,234 1.67% Larson, Sven. 2009. How 14 School Choice Can Create Jobs for South Carolina. Columbia, South Carolina: South Carolina Policy Council. Louisiana 17 $783,407 1.57% Lindsay, Cotton. 2005. Fiscal Impact of the 2005 Universal Scholarship Tax Credit Proposal. Georgia 20 $760,381 1.52% Columbia, South Carolina: South Carolina Policy Council. Florida $677,683 Snell, Lisa. 2009. Weighted24 Student Formula Yearbook. Los Angeles:1.36% Foundation. Reason 2006-07 Report on the Use of the Flexibility Provisos [electronic file]. Columbia, SC: 1.11% Alabama 35 $533,776 Education Oversight Committee. Online: http://eoc.sc.gov/NR/rdonlyres/005CF7BANorth Carolina 37 $491,071 0.98% A43F-421B-AB04-72B8B8B6E4A3/16066/FlexibilityReportText200607.pdf (cited 0.65% Kentucky 7, 2009). 47 $327,100 October The Voice for School Choice. June 26, 2009. Waffling on Student Funding Reform Virginia 49 $241,498 0.48% [electronic file]. Columbia, SC: South Carolinians for Responsible Government. Delaware 50 $238,840 0.48% Online: www.voiceforschoolchoice.com/2009/06/26/school-funding-reform-in-theSource: National Association of Manufacturers (2009) news-yet-again/ (cited: largest city only. * Taxes measured in the states’ October 5, 2009). Importantly, South Carolina’s effective tax rate is almost 2.5 times greater than Georgia’s tax, and almost 4 times greater than North Carolina’s. This puts South Carolina at a serious disadvantage, in terms of its ability to attract and keep industry. Since South Carolina has the highest tax in the country on industrial property, it should be no surprise that it has one of the lowest per capita incomes and economic growth rates in the country. Although it is probably not critical that South Carolina set its tax rate to the lowest in the country, it should definitely make it at least competitive for the Southeast. Since Georgia’s rate is effectively 1.52 percent and North Carolina’s is just under 1 percent, a rate at around 1 percent might be sufficient to attract more industry. Working to reduce the various taxes applied to industry would seriously improve the state’s competitiveness. Such a significant reduction in taxes on industrial property would obviously lead to a reduction in tax revenues on industrial property, at least initially. However, the overall revenue may in fact increase once the growth rate in the state begins to pick up and more industry moves into the state. Furthermore, if the official tax rates are lowered, then the state

Sign up to vote on this title
UsefulNot useful