Funding Education for the Long Run Tax Reform in Washington State by Marilyn Watkins Economic Opportunity Institute

Why we have taxes “To establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.” - U.S. Constitution

Why we have taxes “It is the Paramount duty of the state to make ample provision for the education of all children residing within its borders, without distinction or preference on account of race, color, caste, or sex.” Article IX, Section 1, Washington State Constitution

State Budget Shortfall

K-12 State Budget (9,000 more students)

It’s not just the recession Washington’s rank in school spending Source: U.S. Census Bureau

Washington’s structural deficit Our tax base is shrinking Our need for public investment is growing

Washington’s economy has changed - but tax structure hasn’t Source: Washington Employment Security Department

Washington’s shrinking tax base

Other states are doing better Sources of state revenue Source: 2007 state tax collection by source, taxadmin.org

Washington has the most regressive taxes Source: Institute on Taxation and Economic Policy

Percentage of total state personal income collected in state revenue Source: Bureau of Economic Analysis and Washington Dept. of Revenue

New definition of Basic Ed Adds full day K Adds preschool for low income kids Adds 6 th period to middle school and high school Sets high standards of accountability Provides no way to pay for enhancements – and system already underfunded

We need to invest more in early learning State kindergarten teachers say over half of kids enter unprepared Only 1/3 of eligible kids get into federal and state Head Start Childcare teachers poorly paid, no incentive for training

We need to invest more in higher education Washington ranks: 5 th in community college enrollment 45 th in 4-year enrollment 46 th in graduate & professional enrollment

We can’t fund 21 st century education system with an early-20 th century tax structure

Goals Make our kids and our state more competitive Raise $2 billion per biennium for new education investments (P-16) Means Expand tax base to growing areas of the economy Make tax system fairer

Fair Share Tax Proposal Add new fair share tax on incomes over $200,000 Reduce property and business tax Raise $2 billion net new revenue per biennium, dedicated to education

A fair share tax: Revenue for biennium  Exempt first $200,000 of AGI ($100,000 for individuals)  3% between $200,000 and $499,999  5% over $500,000  7% over $1 million $3.4 billion Source: Institute on Taxation and Economic Policy based on 2006 income levels for Washington taxpayers

Reduce other taxes: Revenue loss for biennium Reduce state property tax by quarter($825 million) Increase B&O credit from $35 to $400/month (exempts gross revenues of $1 million at retail rate) ($522 million) Total loss($1,347 million) Net new revenue$2 billion

Results for taxpayers 4% of Washington households would pay new Fair Share tax All households would pay less property tax 88% of businesses would be exempt from B&O (now 48%) All would benefit from better schools

Context Tax-averse Governor and legislators Severe recession 1933 Supreme Court ruling I-960

Reform will require citizen activism 2010 initiative? Court challenge Implementation in

When If Not Now?

Resources Economic Opportunity Institute Senate Ways & Means, – “Citizen’s Guide to the Budget,” – “Citizen’s Guide to K-12 Finance” WA Dept. of Revenue, Tax Structure Study, Comparative state taxes, dor.wa.govdor.wa.gov Washington Education Association, Education Statistics,