Finance in Education

Chapter 5

The Taxation System

A good tax system should include the following features:

– There should be coordination among al levels of government with little or no duplication of taxes.

– All citizens should pay.– Taxpayers should be left in the same relative financial position

with each other after taxes are paid.– The tax should be bring a reasonable yield, not b merely a

nuisance tax.

A Taxation System

A good taxation system should include the following features:

– Tax erosion should be minimal, regardless of the benefits government owes to deserving citizens.

– Tax collection should be simple and convenient for tax payers and of little cost to the collectors.

– The tax should be levied on the person or household who pays it-shifting of the tax should be minimized.

– The payment of the tax should not cause a major change in the economic practice or vocation of the taxpayer.

Evaluating Tax Structure

Characteristics for evaluating a tax system.– Efficiency – best when operated with the least economic and

social costs and the highest order of services for the money spent

– Equity – structure should provide the highest degree of fairness in the treatment of the individual

– Adequacy – the system ought to provide enough funds to support the level of public service that is adopted for the agency in question

– Adaptability – system should be adaptable to changing economic conditions, social demands for education, and significant changes in education

Unfairness of the Property Tax

Evident in many ways– Unequal assessment practices– Taxation without relationship to ownership of the property

being taxed– Unequal tax bases per pupil to be educated in various districts– Lack of a direct relationship between taxes owed and the

amount of wealth or income of the person or household being taxed

– Taxpayer resistance of property tax has increased greatly over the years.

Circuit Breakers

Adopted by states to relieve elderly and low-income people of part of their property tax burden

Designed to assure that the property taxes of people with low incomes will not exceed a stated portion or percent of their annual income, regardless of the value of their property or the tax in effect in their taxing unit.

Personal Property Taxes

Personal property taxes such as stocks, bonds, mutual funds, and savings accounts are difficult to collect.

There use has proven to be somewhat ineffective.

Income Tax

The income tax is probably the fairest of all taxes.

It is usually a progressive tax and should include personal and corporate income.

Sales Tax

Sales taxes are effective at the state level but are not readily manageable at the local level, especially in small districts.

Sales taxes are regressive when food items and other necessities are taxed, since low-income families generally spend a higher percentage of their income on necessities that he more affluent do.

Potential New Taxes

Site-Value Tax – a tax on the actual value of the land

Value-Added Tax – a tax on the value of good at each transaction level from production to consumption

Lotteries

Not as great a revenue source as publicity would suggest.

It is regressive in nature, since most buyers of tickets are among the members of society who can least afford them.

The debate continues as to whether the lottery is really a tax.