It is budget season across the states, and in many places governors are proposing tax cuts for—so they say— two purposes: growing their state economies and bringing relief to the middle class. But the problem is that the arithmetic has to add up. And experts warn that neither theory justifies tax cuts—particularly when the tax cuts include people in the top brackets.
Josh Bivens at the Economic Policy Institute refutes the myth that tax cuts grow the economy: “The coming year is likely to see repeated calls… for ‘tax reform’ that leads to lower top tax rates, for both individuals and corporations. The claim made on behalf of these policy proposals is that lower top tax rates will lead to accelerated economic growth. One key problem with such claims is that over the past generation a huge and growing wedge has appeared between economy-wide growth rates and the growth rates of the living standards of low-and middle-income households. This wedge means that even successful efforts to boost economy-wide growth rates do disappointingly little to boost incomes for the vast majority of Americans. And an even bigger problem with such claims is that lower top tax rates just are not associated with more rapid economic growth.”
What about the second justification for tax cuts—that reduced taxes will directly help middle income taxpayers by leaving in their pockets the money they would have paid in taxes? The reality is that the same people whose taxes are being reduced will likely pay more in various fees or more in local taxes to replace lost state revenue. They will also very likely lose important services on which they depend: quality public schools and affordable tuition at state universities, for example. Education is one of the biggest lines in most state budgets; and it is therefore one of the first places governors go to reduce the budget. According to a March 2014 policy brief from the Center on Budget and Policy Priorities: “States are one of the main funders of the nation’s public elementary and secondary schools, which some 50 million students—nine out of ten enrolled school-age children—attend. One-fourth of state spending on average, or about $270 billion, goes toward (K-12) public education.” And, “States play a large role in funding higher education through their support of public community colleges, university systems, and vocational education institutions. This support accounts for about 13 percent of state spending, or some $140 billion.”
So… how are K-12 public education and higher education faring in the states where tax cuts are being proposed this year?
In New York, Governor Andrew Cuomo has, according to an analysis by the Pew Charitable Trust’s Stateline, proposed a budget that “would provide $1.7 billion in property tax relief for households earning less than $250,000 a year.” New York’s Alliance for Quality Education responds: during Governor Cuomo’s previous term, inequality in spending between poor and wealthy school districts in New York already had “grown to $8,733 per pupil, a record setting level.” The Alliance for Quality Education recommends that Governor Cuomo adjust this year’s budget to support the state’s families and children by fully funding the remedy, promised by the state in 2007, as the settlement for the lawsuit Campaign for Fiscal Equity v. New York. To meet this commitment, the New York Board of Regents has recommended adding $2 billion annually to the state’s public school budget. Governor Cuomo’s tax cut will ensure that New York cannot fulfill the state’s promise to equalize school finding. Even the governor himself seems to agree that schools need more money. He has said he would find $1.1 billion for K-12 public education as long as the legislature will agree to make students’ standardized test scores count for 50 percent of teachers’ evaluations and expand the number of charter schools. Some people have called Cuomo’s threats to privatize schools and punish teachers a smokescreen to cover the deplorable funding inequality that he cannot address within the confines of his meager budget built on tax cuts.
Stateline reports that in Ohio, Gov. John Kasich has “proposed a 23 percent cut to all income taxes over the next two years and the expansion of an income tax exemption that might spare 200,000 low-and middle-income Ohio households from paying any state income taxes.” This comes with a murky new state school funding plan that phases out past hold harmless guarantees arising from years’ of under-funded school funding formulas. And Kasich’s new budget slashes state reimbursements that have been provided to help make up for a local business tax the legislature suddenly eliminated several years ago. We are hearing a predictable outcry from officials in Ohio’s 612 school districts who realize they will have to go to the polls to pass local school levies to replace lost state revenue.
Then, of course, there is the example of Wisconsin, and Governor Scott Walker’s proposed attack on the funding of public universities. According to Julie Bosman of the NY Times, Governor Walker’s budget “calls for a 13 percent cut in state aid across the university system, with its 13 four-year universities and 180,000 students, for a total decrease of $300 million over the next two years.” Bosman describes the reaction of Rebecca M. Blank, chancellor of the University of Wisconsin at Madison, who has stated, “that if the governor’s budget was approved, she would have to raise out-of-state tuition and institute layoffs. She added that the proposed cuts were so large that if she eliminated five schools—nursing, law, business, pharmacy and veterinary medicine—she would still have to find other ways to trim costs.”
In case there is any question about the likely impact of state tax slashing on K-12 and higher education, one need only look to Kansas and Louisiana.
In Kansas, where Governor Sam Brownback has been cutting taxes for years now, the state is totally broke, and the state constitution allows the governor, during a time of fiscal emergency, to make make further budget reductions on top of those he has previously proposed to the legislature. Early in February, Bryan Lowry reported for the Kansas City Star: “Sam Brownback has announced additional budget cuts—including cuts to public schools and higher education—to help keep the state solvent through the current fiscal year, which ends in June. The House passed a budget fix bill this week, but after the state missed revenue expectations for the month of January, that bill was still expected to fall short of closing the state’s budget hole by $800,000. Just minutes before the Kansas Senate assembled to consider the bill, the governor announced a new round of automatic cuts, known as allotments. The governor will cut the state’s universities by 2 percent and cut K-12 education by 1.5 percent, for a combined savings of $44.5 million. The cuts will go into effect on March 7.” John Eligon, in the NY Times, describes the impact from the point of view of the school superintendent in Kansas City: “The Kansas City Public School District has already endured $35 million in lost state revenue since 2009… Mr Brownback’s cut of 1.5 percent to public school funding statewide would amount to a loss of $1.3 million in her district… That comes as the state has still not paid the district $3 million for capital expenses required under a formula intended to help poor districts.”
And in Louisiana, Campbell Robertson reports for the NY Times that “the shortfall is huge. But it is all the more daunting considering that the governor has unequivocally ruled out any plans for new revenue, (and) bone-deep cuts have already been made to health care and higher education….” Governor Bobby Jindal brags about the decision: “We made an explicit decision and commitment that we were going to cut the government, the public sector economy, as opposed to the private sector economy.” Robertson describes concern among legislators of both political parties: “But here in the Louisiana capital, there is mostly one topic on everyone’s mind these days, and it is quite distressingly close to home: the fiscal reckoning the state is facing for next year and perhaps for multiple budgets to come.” The implications for the state university system have been catastrophic, according to Robertson: “Louisiana’s higher education budget, one of the few discretionary targets, has been slashed by more than just about any other state since 2008; there are a thousnd fewer full-time college faculty members on the state payroll, and next year Louisiana State University, the state’s flagship institution, is facing a potential 40 percent cut in its operating budget.”
Public schools serve 50 million children and adolescents across the states. Add to this the young adults enrolled in the state colleges and universities. Slashing state taxes, supposedly to provide relief for the middle class, is likely to undermine the educational institutions that are essential for these students and for the well-being of their lower and middle income families.