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PAYING FOR PUBLIC EDUCATION Chapter 7 in Guthrie

PAYING FOR PUBLIC EDUCATION Chapter 7 in Guthrie. DR. LEN ELOVITZ. TLWDTAT;. DESCRIBE THE CHARACTERISTICS OF TAXES AND DISCUSS THEIR USE TO FUND PUBLIC EDUCATION. WHERE DO SCHOOL DISTRICTS GET THE MONEY THEY NEED TO OPERATE? . FEDERAL AID WHERE DO THEY GET THE MONEY? STATE AID

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PAYING FOR PUBLIC EDUCATION Chapter 7 in Guthrie

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  1. PAYING FOR PUBLIC EDUCATIONChapter 7 in Guthrie DR. LEN ELOVITZ

  2. TLWDTAT; DESCRIBE THE CHARACTERISTICS OF TAXES AND DISCUSS THEIR USE TO FUND PUBLIC EDUCATION

  3. WHERE DO SCHOOL DISTRICTS GET THE MONEY THEY NEED TO OPERATE? • FEDERAL AID • WHERE DO THEY GET THE MONEY? • STATE AID • WHERE DO THEY GET THE MONEY? • GRANTS • FROM WHOM? • PROPERTY TAXES • OTHER?

  4. HOW DO YOU DETERMINE THE AMOUNT TO BE RAISED BY DISTRICT TAXES? • A = B – OI • AMOUNT TO BE RAISE = BUDGET – OTHER INCOME

  5. POWER TO TAX • FIRST PUBLIC SCHOOL LAW • MASSACHUSETTS BAY COLONY • YE OLDE DELUDER SATAN ACT (1647) • US CONSTITUTION • Section 8 of Article 1 • “The Congress shall have the power to collect and lay taxes… provide for the common defense and general welfare of the United States.” • US Supreme Court • Shaffer v. Carter • States have taxing power “… in order to defray government expenses.” • Local Government is given power to tax by the state

  6. Foundation of Government Taxation • Ability to Pay • Use of Services • Primary tax bases • Wealth • Income • Consumption • Privilege

  7. WHAT IS TAXED? WEALTH – REAL PROPERTY, PERSONAL PROPERTY, ESTATE INCOME – A PORTION OF THE MONEY EARNED BY AN INDIVIDUAL OR BUSINESS OVER APERIOD OF TIMR CONSUMPTION - APPLIES TO COMMODITIES PURCHASED A. SALES TAX – GENERAL (exemptions i.e. Food) B. IF IT APPLIES TO A CLASS OF ITEMS, ITIS AN EXCISE TAX - GASOLINE , CIGARETTES C. GAMBLING PRIVILEGE – PERMIT INDIVIDUALS OR BUSINESSES TO ENGAGE IN CERTAIN ACTIVITIES OR USE PUBLIC FACILITIES - LICENSES, FEES, REGISTRATIONS

  8. Criteria for Evaluating Taxes • YIELD • EQUITY • NEUTRALITY • ELASTICITY • ADMINISTRATIVE BURDEN

  9. YIELD • 1. EQUALS BASE TIMES RATE - Y=B X R •  YIELD = BASE TIMES RATE • $10,000 = $100,000 X 10% • 2. VOLUME • A. IF SMALL, HIGH RATE NEEDED TO • YIELD MORE $ • B. IF LARGE, HIGH RATE YIELDS MANY $ • C. COMPARE - EXCISE TAX ON CIGARETTES WITH BROAD BASED INCOME TAX

  10. EQUITY • FAIRNESS • ALL SHOULDCONTRIBUTE TO SOCIETY AND BE TREATED IN A UNIFORM WAY

  11. EQUITY - BENEFIT RECEIVED PRINCIPLE • TAXES BASED ONUSAGE •   A. POLICE COST? • B. EDUCATION? • GASOLINE TAXES FOR HIGHWAY REPAIRS – TOLLS? TOBACCO TAX FOR CANCER RESEARCH SHOULD ALL TAXES BE THIS WAY?

  12. ABILITY TO PAY PRINCIPLE • 1. TAXPAYERS PAY IN ACCORDANCE WITH THEIR ECONOMIC CAPACITY TO SUPPORT SERVICES • 2. INCOME HAS BECOME THE BEST MEASURE OF ABILITY

  13. EQUAL-SACRIFICE PRINCIPLE • 1. PEOPLE WITH HIGHER INCOME ARE EXPECTED TO NOT ONLY PAY MORE BUT A HIGHER PROPORTION OF THEIR INCOME IN TAXES • 2. THE REDUCTION OF INCOME BY A GIVEN TAX CREATES A GREATER BURDEN ON PEOPLE WITH LESS MONEY

  14. HORIZONTAL – EQUITY PRINCIPLE TREAT EQUALS EQUALLY • A. SAME AMOUNT OF INCOME PAYS THE SAME - IS THIS WHAT HAPPENS? • B. SAME AMOUNT OF PROPERTY PAYS THE SAME - IS THIS WHAT HAPPENS?

  15. VERTICAL – EQUITY PRINCIPLE • DIFFERING AMOUNTS OF TAXES FROM INDIVIDUALS WHO HAVE DIFFERING ABILITIES TO PAY • TAXPAYERS WITH HIGHER INCOMES PAY MORE TAXES • MORE IN TAXES AND A HIGHER PROPORTION OF INCOME

  16. NEUTRALITY • 1. DOES NOT ALTER AN INDIVIDUAL’S OR BUSINESS’S BEHAVIOR IN RESPONSE TO THE TAX • 2. AN EXCISE TAX THAT RAISES THE COST OF • PRODUCTS MAY CAUSE A SHIFT IN CONSUMER • PREFERENCE. • A. NY SALES TAX • B. SIN TAXES • C. BUSINESS LOCATIONS • D. TARIFFS ON IMPORTS • 3. ABANDONED PROPERTY IF TAXES GET TOO HIGH

  17. ELASTICITY • STABILITY OR FLEXABILITY OF A TAX’S YIELD IN RELATION TO MOVEMENTS IN THE ECONOMY • 1. ELASTIC - A TAX WHOSE YIELD INCREASES AT A FASTER RATE THAN ECONOMIC GROWTH - SAY THERE IS AN EXCISE TAX ON CARS – ECONOMY GROWTH LEADS TO AN INCREASE IN PURCHASING MORE AND MORE EXPENSIVE CARS THEREBY INCREASING THE YIELD • 2. INELASTIC - - A TAX WHOSE YIELD INCREASES AT A SLOWER RATE THAN ECONOMIC GROWTH - SAY THERE IS AN EXCISE TAX ON SOAP – ECONOMY GROWTH DOES NOT LEAD TO AN INCREASE IN PURCHASING OF SOAP AND THERE IS NO INCREASE IN THE YIELD

  18. ADMINISTRATIVE BURDEN • THE COST OF TAX ADMINISTRATION AND COMPLIANCE • 1. HOW MUCH DOES ADMINISTRATION EAT INTO • YIELD? TOLLS • 2. HOW MUCH DOES IT COST TO COMPLY – ACCOUNTANTS.

  19. IMPACT V INCIDENCE • 1. IMPACT – THE ACTUAL TAXPAYER – INDIVIDUAL OR BUSINESS • 2. INCIDENCE - THOSE INDIVIDUALS WHO ULTIMATELY BARE THE BRUNT • 3. EXAMPLE - TAX ON MANUFACTURE OF CIGARS • A. SHIFT FORWARD TO PURCHASER AS HIGHER PRICE • B. SHIFT SIDEWAYS IN THE FORM OF LOWER WAGES TO EMPLOYEES, ETC • C. SHIFT BACKWARDS AS LOWER DIVIDENDS TO STOCKHOLDERS.

  20. PROGRESSIVE V REGRESSIVE • A. TAXES ARE MOSTLY PAID OUT OF INCOME • B. SHOULD TAXES BE CONSISTENT WITH THE ABILITY TO PAY IN ORDER TO PROVIDE FOR EQUITY? • C. PROPORTIONAL TAX (Flat Tax) • 1. INCOME = $10,000 TAX = $100 • 2. INCOME = $20,000 TAX = $200 • 3. TAX IS 1% • 4. DOES THIS MEET THE ABILITY TO PAY STANDARD? • 5. IS IT EQUITABLE?

  21. REGRESSIVE - THE PROPORTION OF TAXES PAID TO THE GOVERNMENT DECREASES AS INCOME RISES • 1. INCOME = $10,000 TAX = $100 1% • 2. INCOME = $20,000 TAX = $150 0.75% • 3. $20,OOO PAYS MORE BUT LOWER PERCENTAGE – PROPORTION DECREASES AS INCOME RISES • 4. FAMILY OF FOUR SPENDS $5,000 A YEAR ON FOOD WHICH IS TAXED AT 5% = $250 – IF INCOME IS $25,000 THEN PERCENT OF TAX ON FOOD IS 250/25,000= 1% , IF INCOME IS $50,000 THEN PERCENT OF TAX ON FOOD IS 250/50,000= 0.5%

  22. PROGRESSIVE – THE PROPORTION OF TAXES PAID TO THE GOVERNMENT INCREASES AS INCOME RISES • 1. INCOME = $10,000 TAX = $100 1% • 2. INCOME = $20,000 TAX = $400 2% • 3. HIGHER INCOME PAYS A HIGHER PROPORTION • 4. . FAMILY OF FOUR IS TAXED AT RATE OF 2% ON A HOUSE ASSESSED AT $100,000 FOR AN AMOUNT OF $2,000 WHICH IS 2,000/25,000= 8% • FAMILY OF FOUR IS TAXED AT RATE OF 4% ON A HOUSE ASSESSED AT $100,000 FOR AN AMOUNT OF $4,000 WHICH IS 4,000/50,000= 8%

  23. WHICH IS THE MOST EQUAL? – MINIMUM STANDARD OF LIVING TEST

  24. SIMULATIONS 4.1 & 4.2 • A. WHAT WAS THE BIGGEST SOURCE OF REVENUE TO THE STATES IN 2000, WHAT WAS SECOND, ETC. • B. WHAT CHANGES WERE APPARENT FROM 1970 TO 2000? • C. WHAT WAS THE BIGGEST SOURCE OF REVENUE TO CA IN • 2000, WHAT WAS SECOND, ETC. • D. . WHAT WAS THE BIGGEST SOURCE OF REVENUE TO NJ IN • 2000, WHAT WAS SECOND, ETC • E. HOW DOES NJ COMPARE WITH FL & CA

  25. SOURCES OF REVENUE – PROPERTY TAX • A. FED. – NONE • B. STATES NEGLIGIBLE • C. PRIMARY FOR SCHOOL DISTRICTS

  26. INCOME TAX • A. FED. PRIMARY • B. STATES – GROWING • C. LOCAL – VERY LITTLE AND GOING DOWN

  27. CONSUMPTION TAXES • A. FED SMALL AND FALLING • B. STATES- IMPORTANT BUT FALLING • C. LOCAL – SMALL BUT GROWING

  28. PROPERTY TAX • A. ALL STATES BUT HAWAII – EDUCATION • B. TYPES OF PROPERTY • 1. REAL – LAND & IMPROVEMENTS • 2. PERSONAL – TANGIBLE ITEMS • 3. INTANGIBLE – BANK DEPOSITS, STOCKS, BONDS, LOANS, ETC. • C. PROVIDES THE BULK OF LOCAL FUNDS

  29. D. MOST VISIBLE AND LEAST POPULAR • 1. TAXPAYERS SHOULD BE ABLE TO SEE DIRECT BENEFITS - SCHOOLS, POLICE FIRE • 2. TAXPAYERS SHOULD BE WILLING TO PAY MORE FOR BETTER SERVICES • 3. SOMETIMES TAX PAYERS DON’T LIVE IN COMMUNITY – DON’T GET BENEFITS

  30. ASSESSMENT • A. PROPERTY IS IDENTIFIED AND LABELED • B. OWNER IS IDENTIFIED • C. VALUE IS ASSIGNED1. FAIR MARKET VALUE – USUAL FOR RESIDENCES AND EMPTY LAND • 2. BUSINESSES – INCOME EARNING POTENTIAL OR REPLACEMENT COST IS USUAL • 3. DIFFICULTY – SUBJECTIVITY – TAX APPEALS • 4. PROPERTY – HIGHEST AND BEST USE

  31. FRACTIONAL ASSESSMENT • 1. PUBLIC ACCEPTANCE • A. PSYCHOLOGICAL – PEOPLE THINK THEY ARE GETTING A DEAL • B. BUSINESSES MAY GET A LOWER ASSESSMENT TO ATTRACT OR KEEP THEM IN A MUNICIPALITY • 2. VALUE INCREASES – ASSESSMENT DOES NOT CHANGE

  32. ASSESSMENT CYCLE • 1. EVERY TEN TEARS •  2. ASSESSOR MUST REEVALUATE EACH PARCEL • 3. MARKET VALUE X PERCENT OF VALUATION = • ASSESSMENT • 4. $100,000 HOUSE X .85 = $85,000 • 5. 120,000 HOUSE X .75 = $90,000

  33. EQUALIZATION • NECESSITY – COMPARISON PURPOSES • A. AVERAGE EQUALIZE ASSESSED VALUATION • B. EQUALIZED TAX RATE • 2. ASSESSED VALUATION/ EQUALIZATION RATIO = EQUALIZED VALUE • 3. Av/Er = Ev • 4. $85,000/ .85 = $100,000

  34. EXEMPTION • LOCAL TAX BASES ARE REDUCED BY EXEMPTIONS • SCHOOLS • RELIGIOUS • GOVERNMENT , ETC. – • FOR COMMUNITY BENEFITS

  35. TAX BREAKS • A. SENIOR CITIZENS • B. VETERANS • C. DISABLED • D. POOR • E. HOMESTEAD REBATES • F. CIRCUIT BREAKERS ACT AS A CREDIT AGAINST STATE INCOME TAXES

  36. CALCULATING THE TAX RATE • THE BUDGET OF A GOVERNMENTAL UNIT LESS ITS INCOME FROM OTHER SOURCES EQUALS THE AMOUNT TO BE RAISED BY TAXES. - • Taxes = Budget – Other income • T = B-Oi • B. THIS AMOUNT DIVIDED BY THE ASSESSED VALUATION GIVES YOU THE TAX RATE – • Tax Rate = Budget – Other Income/ Assessed Valuation • Tr = (B-Oi)/Av

  37. EXAMPLE • 1. SCHOOL DISTRICT HAS A BUDGET OF $10,000,000, OTHER INCOME IS $5,000,000, ASSESSED VALUATION IS $250,000,000 WHAT IS THE TAX RATE • 2. Tr = (10,000,000 – 5,000,000)/250,000,000 • Tr = 5,000,00 / 250,000,000 • Tr = 0.020 • 3. 0.020 X 100 = $2 per 100

  38. CALCULATING TAXES OWED • A. TAX RATE TIMES ASSESSED VALUATION • B. To = Trx Av • C. EXAMPLE • 1. HOUSE ASSESSED AT $100,000 • 2. TAX RATE IS $2.00 PER 100 • 3. To = Trx Av • To = .02 X 100,000 • To = $2,000

  39. YIELD • A. HIGH • B. DEPENDENCE SHOULD BE DECREASING AS STATES ASSUME MORE OF A BURDEN

  40. ELASTICITY INELASTIC • A. ASSESSED VALUES DO NOT INCREASE AS RAPIDLY AS INCOME • B. PROPERTY TAXES ARE NOT LINKED TO INCOME

  41. EQUITY • A. VIOLATES HORIZONTAL EQUITY - INDIVIDUALS WITH THE SAME INCOME DO NOT NECESSARILY PAY THE SAME TAX • B. REGRESSIVE – HIGHER PORTION OF INCOME IS SPENT BY LOW INCOME FAMILIES ON HOUSING COSTS • RENTERS • A. IMPACT ON OWNER • B. INCIDENCE ON RENTERS

  42. NEUTRALITY • NOT NEUTRAL • A. DISCOURAGE MAXIMIZATION OF POTENTIAL PROPERTY USE – CONTRIBUTES TO THE DETERIORATION OF URBAN AREAS • B. INFLUENCE HOUSING DECISIONS • C. CAUSE DISPARITIES IN EDUCATIONAL OFFERINGS

  43. COMPLIANCE • ADMINISTRATION & COMPLIANCE – LOW SHOULD PROPERTY TAXES BE ELIMINATED?

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