Tax Slashing Predictably Reduces Government’s Capacity to Do Its Job

Commenting for the NY Times yesterday on the tax reform bill being rushed through Congress, Peter Goodman and Patricia Cohen explain: “The tax plan has been marketed by President Trump and Republican leaders as a straightforward if enormous rebate for the masses, a $1.5 trillion package of cuts to spur hiring and economic growth. But as the bill has been rushed through Congress with scant debate, its far broader ramifications have come into focus, revealing a catchall legislative creation that could reshape major areas of American life, from education to health care.”

This warning about the persistent effort to reduce government should frighten those of us who worry about government’s capacity to educate the 50 million children and adolescents who fill public schools across our states. Perhaps you are taking comfort in the fact that fiscal responsibility for schools is shared by local, state, and federal governments, but it isn’t really that simple. What happens at the top—the federal level—or at the middle level, in your state—or in your local school district’s passage or failure of your most recent school levy is tightly woven together with the funding at other levels. On Wednesday, the Center on Budget and Policy Priorities released A Punishing Decade for School Funding, the latest in its annual bird’s eye surveys of what is being spent across the United States on K-12 public education.  This latest report comes a decade after the Great Recession caused tax collections to collapse across many states. The report examines whether and to what degree states and their public schools have been able to recover.

The Center on Budget and Policy Priorities (CBPP) emphasizes the essential concept of interconnectedness. Public education is primarily a state function; schools are established by the 50 state constitutions, not the federal constitution. Forty-seven percent of money for public schools is provided through taxation by state governments; 45 percent of school funding comes from local school taxes; and only 8 percent is currently provided by the federal government. The number of students enrolled has grown in the decade when the Great Recession hit in 2008: “(W)hile the number of public K-12 teachers and other school workers has fallen by 135,000 since 2008, the number of students has risen by 1,419,000.”

So… what has happened to cause the number of teachers to fall even as the number of students has risen?  “When the Great Recession hit… property values fell sharply, making it hard for school districts to raise local property taxes—schools’ primary local funding source—without raising rates, which is politically challenging even in good times. Raising rates was particularly difficult during a severe recession with steep declines in housing values in many areas.  As a result, local funding for schools fell after the recession took hold, exacerbating the even steeper fall in state funding.”

State funding has not caught up (when adjusted for inflation): “In 29 states, total state funding per student was lower in the 2015 school year (the most recent year for which data is available) than in the 2008 school year, before the recession took hold.  In 17 states, the cut was 10 percent or more.  In 19 states, local funding per student fell over the same period. In the other 29 states for which we have data local funding rose, but those increases usually did not make up for cuts in state support. In 29 states, total state and local funding combined fell between the 2008 and 2015 school years.”

And even before we learn what will happen with the current tax-reform bill being considered by Congress this week, we learn from CPBB that, “Federal policy makers have cut ongoing federal funding for states and localities—outside of Medicaid—in recent years, thereby worsening state fiscal conditions. The part of the federal budget that includes most forms of funding for states and localities… known as non-defense ‘discretionary’ funding (that is, funding that is annually appropriated by Congress), is near record lows as a share of the economy. Federal spending for Title I—the major federal assistance program for high-poverty schools—is down 6.2 percent since 2008, after adjusting for inflation.”

Authors of CBPP’s new report cite peer-reviewed research by C. Kirabo Jackson, Rucker Johnson and Claudia Persico, scholars at Northwestern University and the University of California at Berkeley, who tracked the long-term impact on children of their school district’s funding level: “As common sense suggests—and academic research confirms—money matters for educational outcomes. For instance, poor children who attend better-funded schools are more likely to complete high school and have higher earnings and lower poverty rates in adulthood.” Here are the learning essentials the CBPP report attributes to adequate school funding: recruiting, developing, and retaining high-quality teachers; trimming class size; and expanding learning time. Nothing fancy here: These are basic but very expensive fundamentals.

Why has spending on K-12 public education in many places never caught up to where it was in 2007?  The CBPP reports: “States disproportionately relied on spending cuts to close their large budget shortfalls after the recession hit, rather than a more balanced mix of spending cuts and revenue increases… State revenues have been hurt this year and last by a variety of factors, including falling oil prices, delayed sales of capital, and sluggish sales tax growth.”

Finally and not surprisingly, “Some states cut taxes deeply. Not only did many states avoid raising new revenue after the recession hit, but some enacted large tax cuts, further reducing revenues. Seven of the 12 states with the biggest cuts in general school funding since 2008—Arizona, Idaho, Kansas, Michigan, Mississippi, North Carolina, and Oklahoma—have also cut income tax rates in recent years.”

Austerity government and tax slashing—the reality in too many states in recent years—ought to serve as a warning to us all as Congress considers big reductions in federal taxes. There will inevitably be serious consequences for people who depend on government for things like healthcare and education.

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You Get What You Pay For: Taxes and the Public Schools

Slashing income taxes will not grow your state’s economy, but it will very likely destroy your public schools.  If your state rolls back income taxes, your public schools will inevitably have fewer guidance counselors, and class sizes will be bigger—that is unless you can pass extra taxes locally to make up for the cuts in state revenue.  It is an old maxim: You get what you pay for.

Here is the warning that came in mid-May from the Center on Budget and Policy Priorities: “More than a dozen states have cut personal income tax rates in recent years in hopes of spurring their economies in the aftermath of the Great Recession.  Five states—Kansas, Maine, North Carolina, Ohio, and Wisconsin—enacted especially large cuts in the last five years.  In all five states, leading policymakers claimed that the tax cuts would produce stronger economic growth.  For example, after signing the cuts in his state, Kansas Governor Sam Brownback claimed, ‘Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy.’  None of these big tax-cutting states have seen their economies surge since enacting the tax cuts.”

The Center on Budget and Policy Priorities report continues: “Four of the five states that enacted the largest personal income tax cuts in the last few years have had slower job growth since enacting their cuts than the nation as a whole… States with the biggest tax cuts in the 1990s grew jobs during the next economic cycle at an average rate only one-third as large as more cautious states… Kansas, which enacted the most aggressive personal income tax cuts of recent years, has nearly drained its operating reserves to pay for the tax cuts.  It now faces hundreds of millions of dollars in cuts to funding for schools and other priorities already damaged by the recession.”  It’s a race to the bottom among the tax-slashing states: “Because states must balance their budgets, they must pay for tax cuts by cutting state services, raising other taxes, or both  Those actions slow the economy, offsetting the economic benefit of the tax cuts.”

Chris Suellentrop, a writer for the NY Times Magazine, shifts the point of view by showing us this story through the distorted ideological lenses of members of the Kansas legislature and Kansas Governor Sam Brownback.  Things look different in Topeka, if you hang out in the halls of a statehouse where conservative Republicans dominate both houses and where Governor Brownback doggedly insists that Kansas’s economic future hinges on a “march to zero” income taxes.

Here is what Suellentrop learns by talking to his uncle, the vice-chair of the Tax Committee in the Kansas House of Representatives: “‘People are leaving Kansas,’ he told me. The state has no mountains and no beaches, and thousands of jobs that were lost during the Great Recession, especially in Wichita’s aircraft industry, never returned.  The march to zero, which includes an already-passed provision that exempts the owners of 330,000 businesses and farms in Kansas from income tax, was designed… to turn Kansas into a different sort of tourist attraction. As he and his fellow conservatives see it, it’s an ‘open for business’ sign, one they hope will draw free enterprise to the state, perhaps akin to the way the national debate over the expansion of slavery once drew young abolitionists from New England to the plains.  At the very least, they hope it will prevent young people and existing businesses from moving elsewhere, to places with ski lodges or surf shops.”

Suellentrop describes the move to the far-right in Kansas’ politics: “In the past four years, Brownback has remade the Kansas Republican Party in his likeness.  The party’s once-powerful moderate wing has withered after steep losses in consecutive primary elections, the main battleground where policy is determined in a one-party state.  In 2011, the Kansas House welcomed 33 new Republican members, and then 40 more in 2013, a turnover of more than half the body in just a few years.  The Senate’s moderate Republican president, Steve Morris, was ousted in 2012 with Brownback’s support.  It has been a striking transformation for a state party long associated with a more cooperative approach to politics.”

Suellentrop explains the clash between Brownback’s vision and fiscal reality in terms that the Center on Budget and Policy Priorities would confirm: “The budget itself, at least in broad strokes, is not a complicated document.  About half the state’s spending goes to K-12 education, with another 12 percent or so given to the state’s public colleges.  Around 20 percent goes to Medicaid, some more to pensions for teachers and state workers.  Add those numbers up and you get a budget that’s relatively inflexible, even for a governor and legislature eager to cut it.”

The problem for Kansas’ governor and legislators, as Suellentrop tells the story, is that they want good schools and universities, but they want to have the tax cuts, too.  So far Brownback’s income tax cuts haven’t brought the promised economic growth that would make all this work out: “Government revenues plummeted.  In fiscal year 2014, which ended about a year ago, Kansas took in almost $330 million less than it had anticipated, almost 6 percent below the estimates of the state’s nonpartisan experts.  According to Pew, at the end of 2014 only five states had experienced declines in tax revenues for three consecutive quarters: Alaska, Connecticut, North Carolina, Wisconsin and Kansas.  Moody’s cut its debt rating for Kansas in April of last year.”

Late night budget negotiations continued through the spring of 2015 and into this summer.  The legislature repealed the over-twenty-year-old school funding formula, freezing school funding for two years as the legislature figures all this out, but at the same time restoring millions of dollars in emergency school cuts made mid-budget last February.  In a nod to fiscal reality, on June 12th, the legislature passed a plan that, “raised the state’s sales tax to 6.5 percent, from 6.15 percent; eliminated most itemized deductions for income taxes; raised cigarette taxes, and preserved a watered-down version of Brownback’s ratchet (that turns any revenue growth in future years to income tax cuts).”

Hanging over these negotiations, Suellentrop reminds us, is  a long-running lawsuit “before the Kansas Supreme Court over whether the Legislature’s K-12 cuts were constitutional and satisfied the legal requirement to adequately and equitably educate Kansas children.”  In late June the state’s supreme court released an 87 page ruling that the legislature’s new plan to fund the schools without a formula violates the state constitution.  The Wichita Eagle reports: “The court ruled that the bill violates the state constitution, ‘both in regard to its adequacy of funding and in its change of, and in its embedding of, inequities in the provision of capital outlay state aid and supplemental general state aid.'”  The court clearly disputes the governor and legislature’s arithmetic by which they have claimed that the state is providing enough funding for schools this year and distributing it as fairly as it did under the old formula.  Additionally, in a long-running case which the Kansas Supreme Court had sent back to a lower court for additional action last December, even before this spring’s finagling, “the District Court panel ruled that school funding was inadequate under the state constitution.”

What’s the matter with Kansas? An ideology of tax slashing in this one-party state is clearly one of the primary problems.