TABLE 8-1 Tax Options for the United States

Type of Tax

District

State

Federal

Property

X

possible

 

Sales

 

X

 

Income

 

X

X

raise local revenue for education. That is, provided a decision is made to lodge significant responsibility for raising revenue at the local level, the local property tax is preferred to other local taxes for that purpose. That analytical conclusion is depicted in Table 8-1 by the designation of property taxes as the single revenue source for local school districts. While local sales and income taxes are potentially feasible and are currently used in some states, the property tax is the preferred option.

At the state level, the relevant major revenue sources are state income and sales taxes, with 41 states using income taxes and 45 using sales taxes. States traditionally have not made much use of state-level property taxes to finance education. However, several states have recently shifted toward statewide property taxes or their equivalent, and other states could do so as well. Hence, along with state income and sales taxes, we identify statewide property taxes as a larger potential source of revenue for education than in the past.

Although the federal government now provides only about 7 percent of the revenue for K-12 education, in principle it could do a lot more. In the absence of major tax reform at the federal level (in the form, for example, of a shift away from the federal income tax to a value-added tax or other form of consumption taxation), the relevant revenue source for education at the federal level is the federal income tax.

After evaluating the property tax in some detail, this chapter addresses four questions about the revenue system. The first question is whether the mix of local taxes should be altered by reducing reliance on the property tax and increasing reliance on other local taxes or a modified version of the property tax. The second is what state revenue source would be best if heavier reliance were to be placed on state revenue sources. The third is whether it would make sense to shift away from local revenue raising in favor of much greater reliance on state revenues. And the fourth is whether it would be desirable to increase significantly the federal role in revenue raising for K-12 education.

EVALUATION OF THE PROPERTY TAX

Evaluating the local property tax as a source of funding for local schools is significantly more complicated than evaluating a state or national tax because of the close relationship between the revenues collected and the amount of spending



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