Figure 5.5: South Carolina income tax: Current tax rates compared to. inflation-indexed rates, 2009

Transcription

1 CHAPTER 5: SPECIFIC TAX REFORMS Presumably original intent of imposing a tax rate schedule with graduated marginal tax rates was to make income tax progressive. However, what progressivity exists in state s income tax structure is due to zero tax on first $2,630 of income, and because of graduated marginal tax rates. However, since marginal tax rate increases over such small steps in income, as shown in Figure 5.5, most of progressivity occurs at lower income levels, not higher levels of income. At higher income levels, average tax rate hardly increases at all. This nature of current tax is directly contradictory to goal of progressivity. So although on surface it appears that tax satisfies C does H A this P T only E R at1 0 lower income levels reducing vertical equity condition, it really wealth of se lowest income taxpayers, not intended consequence. P U T T I N G C H I L D R E N F I R S T: W E I G H T E D Figure 5.5: South Carolina income tax: Current tax rates compared to STUDENT FUNDING IN inflation-indexed rates, 2009 SOUTH CAROLINA Income Rates/Brackets if 1959 Current Income Schedule was Inflation Adjusted to by Jameson Taylor Rates/Brackets 2009 able Income Average Rate Average Rate $5,000 $ % $ % $10,000 $ % $ % $15,000 $ % $ % $20,000 $ % $ % $30,000 $1, % $ % $50,000 $3, % $1, % $75,000 $4, % $3, % $100,000 $6, % $4, % $150,000 $10, % $8, % $200,000 $13, % $11, % Figure 5.5 also shows what average tax rates are for various incomes and taxes under current tax system in South Carolina. In right columns it also shows what taxes and average tax rates would be if 1959 tax tables were indexed for inflation. The figure clearly shows that 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for lowest income individuals in state. Figure 5.5 also shows that current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is $5,000 income earner in table. As South Carolina income taxes continue to climb while tax brackets remain stagnant, state becomes a relatively high-tax state. This has a negative impact on

2 186 UNLEASHING CAPITALISM manufacturing property tax tax in in country. In In Figure we we present effective property tax tax rates data for for Souastern states, for for comparison. The ranks given for for states are are out out of of all all states. The net tax and and effective tax tax rate are are calculated based on on property valued at at $25 $25 million ($12.5 million in in machinery and and equipment, $12.5 million in in inventories, and and $2.5 million in in fixtures). Notice that that South Carolina s effective tax tax rate on on industrial property is is over times higher than most industry-friendly state, Delaware. (Delaware is is listed in in figure because it it is is lowest-tax state.) Figure 5.8: Industrial Property es in in Souastern states*, 2007 State Rank (of (of 50) 50) Net Net Effective Rate South Carolina 11 $1,864, % Mississippi 44 $1,291, % Texas 66 $1,264, % Tennessee $1,033, % West Virginia $833, % Louisiana $783, % Georgia $760, % Florida $677, % Alabama $533, % North Carolina $491, % Kentucky $327, % Virginia $241, % Delaware $238, % Source: National Association of of Manufacturers (2009) * es * measured in in states largest city city only. Importantly, South Carolina s effective tax tax rate is is almost times greater than Georgia s tax, tax, and and almost 44 times greater than North Carolina s. This puts South Carolina at at a a serious disadvantage, in in terms of of its its ability to to attract and and keep industry. Since South Carolina has has highest tax tax in in country on on industrial property, it it should be be no no surprise that that it it has has one one of of lowest per per capita incomes and and economic growth rates in in country. Although it it is is probably not not critical that that South Carolina set set its its tax tax rate rate to to lowest in in country, it it should definitely make it it at at least competitive for for Souast. Since Georgia s rate is is effectively 1.52 percent and and North Carolina s is is just just under 11 percent, a a rate rate at at around 11 percent might be be sufficient to to attract more industry. Working to to reduce various taxes applied to to industry would seriously improve state s competitiveness. Such a a significant reduction in in taxes on on industrial property would obviously lead to to a a reduction in in tax tax revenues on on industrial property, at at least initially. However, overall revenue may in in fact fact increase once growth rate rate in in state begins to to pick up up and and more industry moves into state. Furrmore, if if official tax tax rates are are lowered, n state

3 187 CHAPTER 5: SPECIFIC TAX REFORMS 13 Presumably original intent of imposing a tax rate schedule with graduated 10 marginal tax rates was to make income tax progressive. However, what progressivity exists in state s income tax structure is due to zero tax on first $2,630 of income, and because of graduated marginal tax rates. However, since marginal tax rate increases PUTTING over such small CHILDREN steps in income, as shown FIRST: in Figure 5.5, WEIGHTED most of progressivity occurs at lower income levels, not higher levels of income. At higher income levels, average STUDENT tax rate hardly increases FUNDING at all. This nature IN SOUTH of current tax CAROLINA is directly contradictory to goal of progressivity. So although on surface it appears that tax satisfies vertical equity condition, it really does this only at lower income levels reducing wealth of se lowest income taxpayers, Jameson not Taylor intended consequence. It is no secret that jumpstarting South Carolina s economy, among--worst-in-nation, requires reforming state s among--worst-in- nation school system. In fact, Figure 5.5: South Carolina income tax: Current tax rates compared to fixing both requires essentially inflation-indexed same solutions: rates, expanding 2009 individual liberty, streamlining government, and encouraging innovation and creativity. As far as education policy is concerned, one idea in particular promises to bring about and has brought about se reforms in numerous school districts across country. Income This Rates/Brackets policy is weighted if 1959 student Current Income funding. Schedule was Inflation Adjusted to Rates/Brackets Weighted student funding (WSF) is a student-centered mechanism 2009 of school funding in which funding is assigned to individual students, rar than via Average inflexible Rate able Income Average Rate categorical programs. Under WSF, funding follows each child, ideally being distributed directly to school $5,000 child attends. $71 Such funding 1.42% varies for each $125 student as based on 2.5% different needs or weights correlated to disabilities, socio-economic socioeconomic status, academic achievement, and or indicators. $10,000 More specifically, $290 WSF provides 2.90% flexible funding $250 that encourages 2.5% schools to take responsibility $15,000 for using $604 resources as efficiently 4.03% as possible $377 to provide each 2.51% student with services $20,000 that are best for $954 m. Thus WSF 4.77% is much more $527 than a method of 2.63% funding education, it is a means of creating a culture of high expectations, accountability and transparency in $30,000 $1,654 public school system. 5.51% $ % $50,000 $3, % $1, % HOW $75,000 EDUCATION $4,804 IS CURRENTLY 6.41% FUNDED $3, % $100,000 $6, % $4, % In order to better understand how WSF would work in South Carolina, it is necessary $150,000 $10, % $8, % to look at how schools are currently funded. First, we want to provide readers with a brief reminder $200,000 of why South $13,554 Carolina so desperately 6.77% needs $11,877 weighted student funding. 5.94% There is no disputing that South Carolina s educational system is among worst in United States. 1 Consider Figure following: 5.5 also shows what average tax rates are for various incomes and taxes under current tax system in South Carolina. In right columns it also shows what taxes and average 82 percent tax rates of schools would in be South if Carolina 1959 tax failed tables to were meet indexed federal for adequate inflation. yearly The figure clearly progress shows (AYP) that standards 1959 indexed for tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for lowest income individuals South in Carolina state. has 11 of nation s 25 worst public schools. Figure 5.5 also shows that current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is $5,000 income earner in table. 1 As South Carolina income taxes continue to climb while tax brackets remain See Coulson, Andrew, Achievement in Context, South Carolina Policy Council (February 2005); available at: stagnant, state becomes a relatively high-tax state. This has a negative impact on Observes Coulson: Of particular concern in this era of global competition is finding that, as South Carolina s students are falling to bottom of national heap, so, too, is United States falling to bottom of international heap (2). 3

4 188 4 UNLEASHING CAPITALISM manufacturing South property Carolina tax tax has in in country. 4 th worst In high In Figure school completion we we present rate effective 56 percent property in tax tax rates data for country. for Souastern states, for for comparison. The ranks given for for states are are out out of of all all states. The net tax and and effective tax tax rate are are calculated based on on property valued at at $25 $25 million ($12.5 The million state s SAT in in machinery scores are and and equipment, worst in $12.5 Souast million and in among in inventories, worst and and in $2.5 million in in fixtures). United States, Notice ahead that that of South only Carolina s District effective of Columbia, tax tax rate Hawaii on on industrial and Maine. property is is over times higher than most industry-friendly state, Delaware. (Delaware is is listed in in figure For because years South it it is is Carolinians lowest-tax have state.) heard that increasing education spending is best means of improving state s public school system. State government, General Assembly, etc. have done that, with result that state s per pupil spending is third-highest in Souast Figure (cf. 5.8: Figure Industrial 10.1). Moreover, Property during es 1990s in in Souastern Carolina ranked states*, 9 th in 2007 terms of how fast it State increased K-12 Rank (of expenditures (of 50) 50) and Net Net continues to rank near top in terms of proportion of revenue it devotes to education. 2 Effective Rate South Carolina 11 $1,864, % Figure Mississippi 10.1 Souastern 44 Per Pupil $1,291,050 Spending 2007 U.S. 2.58% Census Data Texas 66 $1,264, % Tennessee $1,033, % West Virginia $833, % $12,000 Louisiana $783, % Georgia $10, $760, % $10,000 Florida $9, $8,533 $8,514 $677, % $8,391 $7,883 $7,473 $8,000 Alabama $533, % $7,113 North Carolina $491, % $6,000 Kentucky $327, % Virginia $4, $241, % Delaware $238, % $2,000 Source: National Association of of Manufacturers (2009) * es * measured in in states largest city city only. $0 Importantly, South Carolina s effective tax tax rate is is almost times greater than Virginia Georgia South Florida Alabama North Mississippi Tennessee Georgia s tax, tax, and and almost 44 times Carolina greater than North Carolina s. This Carolina puts South Carolina at at a a serious disadvantage, in in terms of of its its ability to to attract and and keep industry. Since South Carolina has has highest tax tax in in country on on industrial property, it it should be be no no surprise that that it it has has one one of of Clearly, lowest more per per capita money incomes is not and and answer. economic Moving growth forward, rates in in real country. challenge is for state to Although better use it it is is probably already significant not not critical resources that that South it Carolina devotes to set set public its its tax tax education. rate rate to to Weighted lowest in in student country, funding it it allows should for definitely this efficient make use it of it at resources. at least competitive for for Souast. Since Georgia s South rate Carolina s is is effectively public 1.52 school percent funding and and North is essentially Carolina s derived is is just just from under three 11 percent, sources: a a rate rate at federal at around government, 11 percent might state be and be sufficient local communities. to to attract For more fiscal industry. year Working to (FY ), to reduce various taxes applied to to industry would seriously improve state s competitiveness. Such a a significant reduction in in taxes on on industrial property would obviously lead to to a a reduction in in tax tax revenues on on industrial property, at at least initially. However, overall revenue may in in fact fact increase once growth rate rate in in state begins to to pick up up and and more industry 2 Bryan Hassel moves and Marguerite into state. Roza, Furrmore, Funding Child: if if Getting official Results tax tax in rates South are Carolina are lowered, through n Weighted state Student Funding, South Carolina Policy Council with Thomas B. Fordham Foundation (January 2007): 1-2; available at:

5 Chapter CHAPTER 10: Putting 5: 8: SPECIFIC REGULATORY Children TAX REFORMS First per pupil Presumably allocations are original projected intent to reach of an imposing average a of tax $11,242. rate 3 schedule This amount with consists graduated of marginal averages of tax $5,792 rates in was local to dollars; make $4,153 income state tax progressive. funds; and $1,296 However, in federal what funds. progressivity For our exists purposes, in state s source income of se tax funds structure is less is important due to than zero what tax on can be first done $2,630 with each of income, pot of and money. because Federal of and state graduated allocations, marginal particular, tax rates. are However, controlled since by specific marginal programmatic tax rate increases mandates over that such govern small what steps are in called income, categorical as shown funds. in Figure Federal 5.5, most funding, of for progressivity instance, is occurs subject at to lower Title I income (of levels, Elementary not higher and Secondary levels of income. Education At Act) higher guidelines income levels, and or average requirements tax rate (e.g., hardly Reading increases First at or all. This Mamatics nature of and current Science tax is Partnership directly contradictory Program). to Nearly goal half of state progressivity. funding is So restricted although to on certain surface initiatives, it appears such as that reading tax programs, satisfies class vertical size reduction, equity or condition, summer school. it really does this only at lower income levels reducing wealth of Categorical se lowest funds income are taxpayers, funds to which not strings intended are consequence. attached. In order to obtain money, schools or districts may need to create a special program or, launch a new school altoger. Figure 5.5: In ir South groundbreaking Carolina income report on tax: WSF Current in South tax Carolina, rates Bryan compared Hassel and to Marguerite Roza (2007) delineate some of ways categorical funding handicaps student achievement and innovation: inflation-indexed rates, 2009 Because funds arrive to school districts in Income so many different Rates/Brackets pots, each if with 1959 its own restrictions on how Current it can be Income used, district services are at times fragmented with multiple Schedule was Inflation Adjusted to programs/services for each Rates/Brackets type of student. The fragmentation of funding restricts districts 2009 from making decisions about how best to meet needs of its students and instead forces districts to separate resources according to ir categorical source. Average Rate able Income Average Rate Consider a few examples of how this system may thwart district efforts to achieve worthy $5,000 $ % $ % goals: $10,000 $ % $ % CREATING AN INNOVATIVE NEW SCHOOL $15,000 $ % $ % $20,000 Currently districts $954 cannot combine 4.77% all of ir funds $527 to offer a comprehensive, 2.63% innovative $30,000 school designed $1,654 around unique 5.51% needs of its students, $834 despite fact 2.78% that state has several categorical allocations intended specifically to help districts fund different school $50,000 models. Rar, $3,054 if a district that 6.10% wants to use funds $1,695 to finance a new 3.39% school model with a $75,000 comprehensive approach, $4,804 district 6.41% might attempt $3,127 to cobble toger 4.17% some combination of state s 25 separate categorical allocations earmarked for alternative schools, such as: $100,000 junior scholars, $6,554 youth in government, 6.56% homework $4,877 centers, and ors as 4.88% a way to fund $150,000 school. However, $10,054 some of se allocations 6.70% are intended $8,377 only for math and 5.58% science schools, or schools for arts and humanities, or lab schools, or for SAT improvement. Some of funds $200,000 $13, % $11, % are earmarked only for operating costs; ors can be applied only for personnel. Or funds are intended only for special services (like character education or alcohol abuse services). As Figure a result 5.5 of also all se shows restrictions, what creating average a tax new rates innovative are for school various means incomes piecing and taxes funds under toger current into tax a patchwork system in quilt South that Carolina. may or may In not have right any columns coherence. it also 4 shows what taxes and average tax rates would be if 1959 tax tables were indexed for inflation. The figure clearly shows that 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for lowest income individuals in state. Figure 5.5 also shows that current tax system charges all income groups more in taxes 3 As adjusted than for an regional indexed cost rate differences, schedule. The The Education only exception Week Research is Center $5,000 reports income that South earner Carolina s adjusted per-pupil expenditure is $8,339. The national (adjusted) average is $8,973. table. 4 As South Carolina income taxes continue to climb while tax brackets remain As discussed in Chapter 3, F.A. Hayek (1945) explained that individuals have specific knowledge of time, place stagnant, and circumstances state that ors becomes cannot a always relatively possess. high-tax The knowledge state. necessary This has to run a an negative entire economy impact cannot on be known by only a few individuals, which is why central planning cannot work. Hall (2006) explains how this insight applies to education system, and why decisions are best made at school rar than district level.

6 UNLEASHING CAPITALISM manufacturing CLOSING property ACHIEVEMENT tax tax in GAPS in country. In In Figure we we present effective property tax tax rates data for for Souastern states, for for comparison. The ranks given for for states are are out out of of all all states. Several The net different tax and allocations and effective exist tax tax for rate a district are are calculated interested based in creating on on property a program valued to at at close $25 $25 million achievement ($12.5 million gaps in and in machinery better serve and and low-performing equipment, $12.5 students. million Again, in in all inventories, come with and ir and $2.5 own million restrictions which, in combination, make it difficult or impossible to use m well. Some in in fixtures). Notice that that South Carolina s effective tax tax rate on on industrial property is is specify that funds must be used for Reading Recovery (a specific reading program); ors over times higher than most industry-friendly state, Delaware. (Delaware is is listed in in focus on class size reduction in primary years; ors are for schools to provide summer figure assistance because to it students. it is is lowest-tax While each state.) set of restrictions may have its own logic, districts may find it difficult to meet ir own students specific needs. For example, consider a district with many students who are employed in tourism over summer. For se locales, restricting Figure funds 5.8: for use Industrial on summer Property assistance makes es little in sense. in Souastern The district would states*, probably 2007 achieve better results with se students by using funds for a Saturday program during school year. State Rank (of (of 50) 50) Net Net Effective Rate South Carolina 11 $1,864, % BUILDING TEACHER KNOWLEDGE AND SKILLS Mississippi 44 $1,291, % Texas South Carolina has different programs $1,264,358 designed to fund professional 2.53% development or Tennessee enhance teacher quality. Each has its own restrictions, requirements, and specific purpose, $1,033, % making it difficult or impossible for a district to combine funds into one coherent West professional Virginia development initiative that truly $833,234 raises level of teaching 1.67% capability. 5 Louisiana $783, % As indicated above, federal funds are often restricted by categorical funding Georgia $760, % requirements. Although federal funding accounts for approximately 12 percent of per pupil funding Florida in South Carolina, re is little $677,683 state lawmakers can 1.36% do about lifting se stipulations. Alabama The good news here is that local $533,776 funding, which makes up 1.11% about 52 percent (up from 48 percent for 2008), of per pupil funding is not per se subject to state categorical North Carolina $491, % mandates. That being said, sales tax/property tax swap (Act 388) passed in 2006 ceded to state Kentucky control over education dollars formerly $327,100 derived from 0.65% local property taxes. 6 Moreover, Virginia state mandates exercise a great deal $241,498 of influence over how 0.48% districts can spend ir education funds for instance, funding unique programs or increasing teacher salaries. Again, Delaware $238, % source of each school s funding is less important than what can be done with each pot of Source: National Association of of Manufacturers (2009) money. * es For this reason, we will focus our attention on those categorical restrictions that * measured in in states largest city city only. hamper state funding. Importantly, South Carolina s effective tax tax rate is is almost times greater than Georgia s STATE FUNDING tax, tax, and and almost 44 times greater than North Carolina s. This puts South Carolina at at a a serious disadvantage, in in terms of of its its ability to to attract and and keep industry. Since South Carolina has The has state s highest share tax tax of in public in country school on financing on industrial is property, primarily it controlled it should be be by no no surprise 1977 that Education that it it has has one Finance one of of Act lowest and per per capita 1984 incomes Education and and Improvement economic growth Act. rates The in former in country. distributes education dollars Although proportionately it it is is probably as based not not on critical each that district s that South Carolina tax base set (referred set its its tax tax rate to rate as to to lowest index of in in taxpaying country, ability) it it should and accounts definitely for make roughly it it at at 65 least percent competitive of General for for Fund Souast. K-12 education Since Georgia s expenditures. rate As is is indicated effectively in 1.52 Hassel percent and Roza s and and North report Carolina s for South is is just just Carolina under 1 Policy 1 percent, Council a a rate rate at (2007) at around on 1 weighed 1 percent student might funding, be be sufficient 45 percent to to attract of state more education industry. funding Working is to restricted to reduce by various categorical taxes programs. applied to In to industry fact, according would seriously to Education improve Week, South state s Carolina competitiveness. ranked fifth in nation with Such at a a significant least 74 different reduction categorical in in taxes on funding on industrial programs property it requires. would obviously Hassel and lead Roza to to a a reduction delineate some in in tax tax of revenues ways in on on which industrial categorical property, funding at at least hampers initially. schools: However, overall revenue may in in fact fact increase once growth rate rate in in state begins to to pick up up and and more industry moves into state. Furrmore, if if official tax tax rates are are lowered, n state 5 Hassel and Roza, This legislation can be found at:

7 Chapter CHAPTER 10: Putting 5: 8: SPECIFIC REGULATORY Children TAX REFORMS First Presumably original intent of imposing a tax rate schedule with graduated marginal INHIBITS tax rates SPENDING was to COHERENCE make income tax progressive. However, what progressivity exists in state s income tax structure is due to zero tax on first $2,630 of income, and because Each distinct of state graduated allocation marginal (or categorical ) tax rates. is intended However, to serve since a specific marginal group of tax students rate increases or over furr such some small specific steps program. in income, As a as result, shown regulations in Figure often 5.5, require most of separate progressivity accounting, occurs place at lower limits income on what levels, can be not purchased higher with levels funds, of and income. prescribe At in higher detail income what services levels, are to be provided and how. The effect is to prohibit commingling of funds across categories, average tax rate hardly increases at all. This nature of current tax is directly contradictory making it difficult to pull funds from different line items to design an intentional, coherent to goal program. of progressivity. The result in So many although cases is on layering surface of it programs appears on that top of one tax satisfies anor over vertical time, equity making condition, difficult it really to align does this use only of funds at with lower district income and school levels strategies reducing and wealth of priorities se lowest or evaluate income how taxpayers, well different not programs intended are working. consequence. Figure IMPOSES 5.5: BURDENSOME South Carolina ACCOUNTING income AND FUND tax: MANAGEMENT Current tax rates compared to Funds from each source need to be accounted for separately. As a result, districts or schools may have hundreds of different funding sources to manage. These cumbersome requirements often necessitate oversight of a program manager to take on administrative tasks, diverting funds from educational activities. Income Rates/Brackets if 1959 Current Income Schedule was Inflation Adjusted to Rates/Brackets CREATES UNPREDICTABILITY 2009 Average Rate able With Income resources tied to Average creation of a Rate myriad of programs, each with its own complex formula for allocation, districts have a difficult time predicting from year to year what $5,000 resources will be at $71 ir disposal. 1.42% $ % $10,000 $ % $ % FORCES A ONE-SIZE-FITS-ALL APPROACH $15,000 $ % $ % $20,000 Districts and schools $954 differ in ir 4.77% needs and in ir $527 capacities to solve 2.63% problems y face. Categoricals that come with prescriptions for use limit districts and schools from using $30,000 funds in ways that $1,654 school officials 5.51% think are most $834 efficient and effective. 2.78% 7 $50,000 $3, % $1, % $75,000 In short, categorical $4,804 funding is 6.41% inefficient, reduces $3,127 amount of money 4.17% available for instructional services, and is difficult to track and manage. Moreover, such restrictions encourage $100,000 a top-down $6,554 approach to school 6.56% funding that $4,877 centralizes control 4.88% in hands of legislators, $150,000 instead of $10,054 freeing up schools 6.70% or districts to $8,377 fund programs y 5.58% think will work best for $200,000 ir students. $13, % $11, % A second problem with way schools are funded in South Carolina is that funding goes to districts, instead of schools mselves. This is partially attributable to dependence Figure 5.5 also shows what average tax rates are for various incomes and taxes on categorical funding, which creates logistical and accounting burdens for individual under current tax system in South Carolina. In right columns it also shows what schools. It is also a reflection of a bureaucratic administrative culture in South Carolina s taxes and average tax rates would be if 1959 tax tables were indexed for inflation. The school districts and legislature that stifles leadership and innovation. figure clearly shows that 1959 indexed tax rate structure is more uniformly progressive, The result is that schools are not free to spend education dollars on targeted programs especially at higher levels of incomes. It keeps tax rates extremely low for lowest income that would be most beneficial to ir students. WSF experts Hassel and Roza argue: individuals in state. Figure 5.5 also shows that current tax system charges all income groups more in Because funds arrive to school districts in so many different pots, each with its own taxes than restrictions an indexed on how rate it schedule. can be used, The district only exception services are is at times $5,000 fragmented income earner with multiple in table. As programs/services South Carolina for income each type taxes of student. continue The fragmentation to climb while of funding tax brackets restricts districts remain stagnant, state becomes a relatively high-tax state. This has a negative impact on 7 Hassel and Roza,, 2, 5. inflation-indexed rates, 2009

8 UNLEASHING CAPITALISM manufacturing from making property decisions tax tax in in about country. how best In In to Figure meet needs we we present of its students effective and instead property forces tax tax rates data districts for for Souastern to separate resources states, for according for comparison. to ir The categorical ranks given source. for 8 for states are are out out of of all all states. The net tax and and effective tax tax rate are are calculated based on on property valued at at $25 $25 million As ($12.5 indicated million above, in in machinery weighted student and and equipment, funding allocates $12.5 million education in in inventories, dollars each and and child $2.5 million based on in in his fixtures). specific Notice needs. that that What South this Carolina s means, in effective practice, tax tax is rate that on each on industrial school property receives is a is over specific amount times higher of funding than to educate most industry-friendly each child. The thinking state, Delaware. here is that (Delaware education is is listed funding in should figure be because centered it it on is is schools lowest-tax rar state.) than districts because schools are locus of each student s education. Thus while districts can provide some administrative support, most decisions about how education funds are spent should be made at school level. Understanding Figure 5.8: why Industrial this should Property be case es requires in evaluating Souastern school funding states*, procedures 2007 in light of goals such funding seeks to accomplish. State Rank (of (of 50) 50) Net Net Effective Rate South Carolina 11 $1,864, % A NEW Mississippi WAY OF LOOKING 44 AT SCHOOL $1,291,050 FUNDING 2.58% Texas 66 $1,264, % In order to discern best means for funding public education in South Carolina, focus Tennessee needs to be on what measures determine $1,033,544 success. School funding 2.07% experts generally agree West that a Virginia successful school funding strategy $833,234 is one sustained by 1.67% following three values: Louisiana $783, % Efficiency Georgia $760, % Equity Florida Accountability $677, % Alabama $533, % North Weighted Carolina student funding would greatly $491,071 improve funding 0.98% of South Carolina s school system because WSF can be shown to be best available strategy within current framework Kentucky for achieving values articulated $327,100 above. These values 0.65% provide an objective standard Virginia for determining which funding policies $241,498 should be implemented. 0.48% A WSF system that does Delaware not meet se criteria 50 would 50 be a failure. $238,840 Likewise, current means 0.48% of funding public schools in South Carolina is a failure precisely because it is inefficient, inequitable and Source: National Association of of Manufacturers (2009) hinders * es * accountability. measured in in states largest city city only. EFFICIENCY Importantly, South Carolina s effective tax tax rate is is almost times greater than Georgia s tax, tax, and and almost 44 times greater than North Carolina s. This puts South Carolina at at a a serious The disadvantage, primary measure in in terms of of of success its its ability in to to attract public and and school keep system industry. is Since student South achievement. Carolina has For has this highest reason, tax tax in in federal country No Child on on industrial Left Behind property, (NCLB) it it should Act ties be be no education no surprise funding that that it it has to has one adequate one of of yearly lowest progress per per capita (AYP) incomes goals. and and In economic turn, districts growth and rates schools in in are country. given annual report cards that Although record and it it is is track probably ir not performance not critical that that in South meeting Carolina se goals. set set its its tax tax rate rate to to lowest in in country, With regard it it should to school definitely funding make in particular, it it at at least competitive most relevant for for question Souast. is how to Since use Georgia s funds efficiently rate is is effectively to enhance 1.52 student percent performance. and and North Carolina s School administrators is is just just under typically 11 percent, assume a a rate rate at increasing at around instructional 11 percent might time be is be sufficient best means to to attract of improving more industry. student achievement. Working to to As reduce asserted various by Education taxes applied Oversight to to industry Committee, would seriously greater improve investment state s in competitiveness. classroom and in direct Such a a significant reduction in in taxes on on industrial property would obviously lead to to a a reduction in in tax tax revenues on on industrial property, at at least initially. However, overall revenue may in in fact fact increase once growth rate rate in in state begins to to pick up up and and more industry moves into state. Furrmore, if if official tax tax rates are are lowered, n state 8 Ibid., 8.

9 CHAPTER 5: 8: SPECIFIC REGULATORY TAX REFORMS Chapter 10: Putting Children First instruction Presumably will improve original academic intent performance of imposing of a students. tax rate 9 schedule In turn, allocating with graduated more marginal money to tax instructional rates was time to make often requires income reducing tax progressive. administrative However, costs. what progressivity exists in One of state s primary income tax strengths structure of is WSF due is to that zero it simplifies tax on first debate $2,630 regarding of income, and efficient because of of education graduated funds by marginal directly tax tying rates. instructional However, funding since to specific marginal students. tax rate As increases recommended over such by small Oversight steps in income, Committee, as shown under in a Figure WSF 5.5, model most, 85 of percent progressivity of funds occurs generated by lower each income student levels, would not go higher to instruction levels of and income. instructional At higher support income services levels, for that average student. tax The rate important hardly point increases here at is all. not This that nature WSF mandates of current an increase tax is directly in instructional contradictory time to (it does goal not), of but progressivity. that such funding So although makes on it easier surface to correlate it appears student that funding tax with satisfies student vertical achievement. equity condition, it really does this only at lower income levels reducing wealth of Moreover, se lowest by simply income shifting taxpayers, funding not to intended where it consequence. belongs to each student and his school reductions in administrative time and costs are realized almost automatically. Consider Figure 5.5: following South benefits Carolina realized income by school tax: districts Current in or tax rates states that compared have adopted to WSF: inflation-indexed rates, 2009 Hartford, Connecticut. In three years, Hartford Public School District increased instructional funding by more Income than 40 Rates/Brackets percent by correspondingly if 1959 reducing central Current office Income administrative expenses. Schedule was Inflation Adjusted to Rates/Brackets 2009 Baltimore, Maryland. In two years, Baltimore City Average Schools succeeded Rate in able reallocating Income 80 percent Average of district operating Rate costs to individual schools, increasing school funding by more than $88 million. 10 $5,000 $ % $ % $10,000 As things stand, $290 South Carolina s 2.90% current system $250 of funding 2.5% public schools is extremely $15,000 inefficient. The $604 pioneering 4.03% WSF report issued $377 by Thomas B. 2.51% Fordham Institute (2006) discusses this problem in detail. Policies at district, state, and federal level all contribute $20,000 to problem, $954 observes 4.77% report. Many $527 of assumptions 2.63% and political deals built into $30,000 those policies $1,654 deny, ignore, 5.51% or even compound $834 those problems. 2.78% These public policies $50,000 are so flawed $3,054 and so consistently 6.10% fail to solve $1,695 problems that 3.39% entire financing system needs to be modernized if core problems of inequity and antiquity are to be solved. $75, $4, % $3, % $100,000 One inefficiency $6,554 mentioned by 6.56% Fordham $4,877 Institute report entails 4.88% districts using minimum $150,000 staffing requirements $10,054 to provide 6.70% funding to $8,377 schools. The solution, 5.58% used by many of districts that have implemented WSF, is to give principals discretion over hiring and staffing $200,000 decisions. The $13,554 idea here is that 6.77% funding should $11,877 be allocated on 5.94% a per student basis, rar than a per teacher basis. More generally, WSF is thus grounded in insight that educational Figure resources, 5.5 also shows or inputs, what should average correspond tax rates as are closely for various as possible incomes to and specific taxes under outcomes current in this tax case, system academic in South success Carolina. of particular In right students. columns it also shows what taxes and average tax rates would be if 1959 tax tables were indexed for inflation. The figure clearly shows that 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for lowest income individuals 9 The Education in Oversight state. Committee is appointed by legislature and governor to monitor state s progress Figure in meeting 5.5 standards also shows set down that by South current Carolina tax system Education charges Accountability all income Act of groups See more in taxes 07 Report than on an Use indexed of rate Flexibility schedule. Provisos; The available only exception at: is $5,000 income earner in 421B-AB04-72B8B8B6E4A3/16066/FlexibilityReportText pdf. table. 10 As South Carolina income taxes continue to climb while tax brackets remain Snell, Lisa, Weighted Student Formula Yearbook, Reason Foundation (2009): 139; available at: stagnant, state becomes a relatively high-tax state. This has a negative impact on 11 Fund Child: Tackling Inequity & Antiquity in School Finance, Thomas B. Fordham Institute (June 2006): 14; available at:

10 funding varies widely from district to district in South Carolina. Consider that for FY only one of school districts (Allendale County Schools) located in one of state s five poorest counties also ranked among top five in terms of highest per pupil allocations. At same time, Dillon County, UNLEASHING third poorest in state, was home to three of bottom five districts in terms of per pupil spending. 12 CAPITALISM As Figures 10.2 and 10.3 below indicate, projected education funding for FY produced similar results. manufacturing EQUITY property tax tax in in country. In In Figure we we present effective property tax tax rates data for for Souastern states, for for comparison. The ranks given for for states are are out out of of all all 50 One 50 states. of The primary net tax drivers and and effective behind tax tax WSF rate movement are are calculated and based with on on bipartisan property valued supporters at at $25 $25 as Figure 10.2 Per Pupil Funding Five Poorest Counties in South million varied as ($12.5 former million U.S. Secretary in in machinery of Education and and equipment, William $12.5 J. Bennett million to in Clinton inventories, Chief and of and Staff $2.5 million John Podesta, in in fixtures). it can Notice fairly that be that called Carolina South such Carolina s (FY ) is effective desire for tax tax equitable rate on on industrial funding. property Education is is over funding varies times widely higher County from than district most to industry-friendly district % South poverty Carolina. state, Delaware. Consider Total (Delaware that funding for FY is is listed in in only figure one of because school it it is is districts lowest-tax (Allendale state.) County Schools) located in one of state s five poorest Allendale counties also ranked among top five 36.8% in terms of highest per pupil $13,053 allocations. At same time, Dillon County, third poorest in state, was home to three of bottom five districts Williamsburg in terms of per pupil spending % As Figures in 10.2 and 10.3 $11,367 Figure 5.8: Industrial Property es in Souastern states*, below 2007 indicate, projected education funding for FY produced similar results. Dillon State Rank (of (of 50) 50) Net Net 27.7% Effective Dillon 1=$9,333 Rate South Carolina 11 $1,864, % Dillon 2=$8,243 Mississippi Figure 10.2 Per Pupil 44 Funding $1,291,050 Five Poorest Counties 2.58% in South Texas 66 Carolina (FY ) $1,264,358 Dillon 2.53% 3=$7,865 Figure 10.2: Per Pupil Funding Five Poorest Counties in South Tennessee County % $1,033,544 in poverty 2.07% Total funding Carolina (FY ) West Allendale Virginia $833, % 1.67% County % in poverty Total $13,053 funding Allendale Louisiana % $783, % $13,053 Williamsburg Georgia Williamsburg % 36.3% $11,367 $11,367 Bamberg 20 $760, % Bamberg 1.52% 1=$10,889 Dillon 27.7% Florida Dillon $677, % 1.36% Dillon Dillon 1=$9,333 1=$9,333 Alabama $533,776 Bamberg Dillon 1.11% 2=$12,471 2=$8,243 Dillon 2=$8,243 North Carolina $491,071 Dillon 0.98% 3=$7,865 Kentucky $327,100 Dillon 0.65% 3=$7,865 Bamberg 27.4% Virginia $241,498 Bamberg 0.48% 1=$10,889 Delaware Lee $238, % Bamberg 0.48% $12,196 2=$12,471 Source: National Association of of Manufacturers (2009) Lee * South es * measured Carolina in in states largest city city only. 26.2% 15.1% $12,196 $11,242 South Bamberg Carolina 15.1% 27.4% Bamberg $11,242 1=$10,889 Importantly, South Carolina s effective tax tax rate is is almost times greater than Georgia s Figure 10.3: tax, tax, and and Per almost Pupil 44 times Funding greater than Five North Wealthiest Carolina s. Counties This Bamberg puts South in 2=$12,471 South Carolina at at a a serious disadvantage, in in terms of of its its ability to to attract and and keep industry. Since South Carolina has 12 For has FY , highest none tax tax of in in poorest country Carolina counties on on industrial are (FY ) among property, top five in it it terms should of total be be no spending. no surprise This is that that because it it has has budget cuts slightly one of County reduced state share of Education per and % in Financing poverty Act funding. one of lowest per capita incomes and economic growth rates in in country. Total funding Beaufort Although it it is is probably not not critical that that 10.4% South Carolina set set its its tax tax rate rate $15,240 to to lowest in in Berkeley country, it it should definitely make it it at 10.6% at least competitive for for $10,733 Souast. Since Dorchester Georgia s Lee rate is is effectively 1.52 percent and and 10.7% North 26.2% Carolina s is is just just under $12, percent, a a rate rate at at around 11 percent might be be sufficient to to attract more industry. Dorchester Working to 2=$8,830 to reduce various South taxes Carolina applied to to industry would seriously 15.1% improve state s competitiveness. $11,242 Dorchester Such a a significant reduction in in taxes on on industrial property would 4=$13,643 obviously lead to to a a Lexington reduction in in tax tax revenues on on industrial property, 10.9% at at least initially. However, overall revenue may in in fact fact increase once growth rate rate in in state begins Lexington pick 1=$11,693 up up and and more industry moves into state. Furrmore, if if official tax tax rates are Lexington are lowered, 2=$10,736 n state 12 For FY , none of poorest counties are among top five in terms of total Lexington spending. 3=$13,095 This is because budget cuts slightly reduced state share of Education Financing Act funding. Lexington 4=$12,423 Lexington 5=$12,363 York 12.1% York 1=$9,557 York 2=$11,870

11 Berkeley 10.6% Bamberg 1=$10,889 $10,733 Bamberg 2=$12,471 Dorchester 10.7% Dorchester 2=$8,830 Chapter CHAPTER 10: Putting Children First Lee 5: SPECIFIC TAX REFORMS % $12, Dorchester 4 = $13,643 South Carolina 15.1% $11,242 Presumably original intent of imposing a tax rate schedule with graduated marginal Figure tax 10.3: rates was Per to Pupil make Funding income Five tax progressive. Wealthiest However, Counties what in progressivity South exists Lexington state s income tax structure Carolina is due (FY ) to 10.9% zero tax on first Lexington $2,630 1=$11,693 of income, and because of graduated marginal tax rates. However, since marginal tax rate County % in poverty Total funding increases over such small steps in income, as shown in Figure 5.5, most Lexington of progressivity 2=$10,736 occurs Beaufort at lower income levels, not higher levels 10.4% of income. At higher income $15,240 levels, average Berkeley tax rate hardly increases at all. This nature 10.6% of current tax is Lexington directly $10,733 contradictory 3=$13,095 to Dorchester goal of progressivity. So although on 10.7% surface it appears that tax satisfies vertical equity condition, it really does this only at lower income Lexington Dorchester levels reducing 4=$12,423 2=$8,830 wealth of se lowest income taxpayers, not intended consequence. Dorchester Lexington 4=$13,643 5=$12,363 Lexington 10.9% Figure 5.5: South Carolina income tax: Current tax rates Lexington compared 1=$11,693 to inflation-indexed rates, 2009 Lexington 2=$10,736 York 12.1% Lexington 3=$13,095 Lexington 4=$12,423 Income Rates/Brackets Lexington York 1=$9,557 if =$12,363 Current Income York 12.1% Schedule was Inflation Adjusted to Rates/Brackets 2009 York 2=$11,870 1=$9,557 Average York 2=$11,870 Rate able Income Average Rate York 3=$11,232 $5,000 $ % $125 York 2.5% 4=$10,840 York 4=$10,840 $10,000 $ % $ % $15,000 $ % $ % No doubt, se inequities should be addressed. Again, WSF offers a solution. The $20,000 $ % $ % promise behind WSF is that education dollars follow child and that children with special needs are $30,000 funded in a $1,654 manner that directly 5.51% serves ir $834 needs. WSF in this 2.78% regard functions like a market $50,000 economy, $3,054 which focuses 6.10% on how to best $1,695 serve its consumers. 3.39% Under WSF, district $75,000 within which a $4,804 child resides is irrelevant. All things being equal, low-income children, 6.41% no matter where y live, are funded equally. 13 $3, % It is difficult to imagine a fairer allocation formula. $100,000 $6, % $4, % $150,000 $10, % $8, % 13 Funding capital construction costs would continue to be an issue in that WSF is dedicated to operational costs. One option $200,000 for reform here $13,554 would be to dedicate 6.77% lottery funding $11,877 to helping poorer districts 5.94% build and renovate schools. Figure 5.5 also shows what average tax rates are for various incomes and taxes under current tax system in South Carolina. In right columns it also shows what taxes and average tax rates would be if 1959 tax tables were indexed for inflation. The figure clearly shows that 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for lowest income individuals in state. Figure 5.5 also shows that current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is $5,000 income earner in table. As South Carolina income taxes continue to climb while tax brackets remain stagnant, state becomes a relatively high-tax state. This has a negative impact on

12 UNLEASHING CAPITALISM manufacturing According property to tax WSF tax in in model, country. each In student In Figure receives we we an present equal amount effective of base property funding. tax tax rates This funding data for for is Souastern n supplemented states, for for according comparison. to various The ranks weights. given Handicapped for for states students are are out out of who of all all 50 require 50 states. additional The net attention, tax and and effective for instance, tax tax rate would are are be calculated matched based with additional property funding. valued at Such at $25 $25 million funding ($12.5 would million not be tied in in machinery to a new program and and equipment, a school $12.5 might million not be able in in inventories, afford, but and and would $2.5 million come in in in fixtures). form of additional Notice that that dollars South that Carolina s could be effective used to hire tax tax additional rate industrial teachers property or bring in is is over specialists times to help higher each than child. The most Fund industry-friendly Child report state, explains Delaware. how this (Delaware weighting is is listed system in in works: figure because it it is is lowest-tax state.) Under WSF, per-student amount varies with characteristics of child. Students with added educational needs receive extra funding based on costs of meeting those Figure 5.8: needs. Industrial The amount Property attached es to each student in is in Souastern calculated states*, by taking 2007 a base amount and adding State money Rank determined (of (of 50) 50) by a series Net Net of weights assigned Effective to various Rate categories of students. These weights could take form of dollar amounts: an extra $500 for a South student Carolina in one category, 11 $1,000 for a $1,864,900 student in anor. Or y 3.73% could be expressed in Mississippi proportional terms, with 44 students in $1,291,050 a high-need category generating, 2.58% say, 1.4 or 1.5 times base level of funding. Eir way, concept is same: students with higher Texas levels of need receive 66 more weight in $1,264,358 funding system. 2.53% Most districts that have Tennessee implemented weighted student funding $1,033,544 assign higher weights 2.07% for: students from lowincome families; English language learners; students with disabilities (including different West weights Virginia for different 14 types 14 of disabilities); $833,234 and students with previously 1.67% low test scores. 14 Louisiana $783, % Georgia Of course, questions regarding equitable funding do not disappear under WSF, but $760, % become part of debate regarding value of each weight assigned to various student needs. Florida The benefit, however, is that WSF formula $677,683 forces policy makers 1.36% to assign specific monetary Alabama values to specific 35 needs, 35 thus making $533,776 it easier to determine 1.11% wher this additional spending North is having a measurable impact on student performance. These weights can n be Carolina $491, % re-assessed periodically based on impact on student performance. Kentucky Anor benefit for South Carolina, in $327,100 particular, is that 0.65% shift to WSF would depoliticize Virginia entire debate regarding equitable $241,498 funding for rich 0.48% districts versus poor districts Delaware or urban districts versus rural ones. In $238,840 doing so, WSF would 0.48% force policy makers to address only inequities that matter: differences in students abilities and circumstances Source: National Association of of Manufacturers (2009) that might * es * orwise measured in prevent in states m largest from city city obtaining only. resources y need to be academically successful. Importantly, South Carolina s effective tax tax rate is is almost times greater than Georgia s ACCOUNTABILITY tax, tax, and and almost 44 times greater than North Carolina s. This puts South Carolina at at a a serious disadvantage, in in terms of of its its ability to to attract and and keep industry. Since South Carolina has Accountability has highest is tax tax in in new country buzz word on on among industrial education property, officials it it should se be be days. no no surprise As noted that that earlier, it it has has one NCLB one of of requires lowest each per per capita school incomes be assigned and and economic a report card growth as rates a means in in of country. holding schools more accountable. Although Teachers it it is is probably are held not accountable not critical that that for South improving Carolina test set set scores its its tax tax and rate rate exceeding to to lowest AYP in in standards. country, Principals it it should are definitely accountable make for it it at improving at least competitive overall school for for performance Souast. Since while Georgia s administering rate funds is is effectively as efficiently 1.52 percent as possible. and and North The Carolina s flip side of is is accountability, just just under 11 percent, however, a a rate rate is at responsibility. at around 11 percent If we are might truly be to be hold sufficient schools to to accountable attract more for industry. performance Working of to each to reduce student, various we need taxes to give applied schools to to industry and districts would seriously funding improve flexibility state s to create competitiveness. learning strategies appropriate Such for a a significant each student. reduction In particular, in in taxes principals on on industrial need property to be given would more obviously flexibility lead over to to a a reduction staffing and in in budgetary tax tax revenues decisions. industrial Currently, property, in South at Carolina at least initially. such decisions However, are made overall at revenue district level. may in As in fact fact observed increase by once Fordham growth Institute: rate rate in in Almost state begins no dollars to to pick as up up such and and reach more industry moves into state. Furrmore, if if official tax tax rates are are lowered, n state 14 Fund Child,

13 CHAPTER 5: 8: SPECIFIC REGULATORY TAX REFORMS Chapter 10: Putting Children First individual Presumably schools; district original pays intent nearly of all imposing bills. a School tax rate budgets schedule are developed with graduated at marginal central office, tax rates and decisions was to make on hiring, income services, tax and progressive. teacher allocation However, are made what re. progressivity 15 exists in As we state s shall explain income below, tax structure state is due government to zero can tax loosen on its first control $2,630 over of education income, and by employing because of several graduated strategies marginal to help districts tax rates. and However, schools work since toger marginal to implement tax rate a increases WSF formula over that such provides small steps for more in income, accountability as shown and in transparency. Figure 5.5, most Here, of only progressivity point we occurs wish to at make lower is income that categorical levels, not funding higher is levels one of of income. key obstacles At higher to income making levels, education average funding tax more rate transparent. hardly increases This is at primarily all. This because nature of regulations current regarding tax is directly categorical contradictory funding to require goal complex of progressivity. accounting procedures So although that on make surface it next to it impossible appears that to track tax how satisfies money is vertical being distributed equity condition, and used. it Observes really does Fund this only Child at report: lower income levels reducing wealth of se lowest income taxpayers, not intended consequence. District allocation practices are so murky and complex that it is difficult to determine how Figure much 5.5: money South is spent Carolina at any individual income school. tax: Even Current school boards tax rates and district compared administrators to may have little idea how much money ir schools have. Even now, most schools receive resources that are tracked inflation-indexed district level, and rates, not within 2009 school budgets. 16 Again, we can look at how WSF has worked in or states to illustrate how WSF would improve accountability and transparency in South Income Carolina: Rates/Brackets if 1959 Current Income Schedule was Inflation Adjusted to Rates/Brackets 2009 San Francisco, California. Schools in San Francisco tie weighted student funding to instructional line-items in budget, which are n Average correlated with Rate able Income Average Rate specific academic goals. $5,000 $ % $ % $10,000 Houston, Texas. $290 School-level 2.90% budgets in Houston $250 show weights 2.5% and funding for each subcategory of student and also include academic achievement data. $15,000 $ % $ % $20,000 Hawaii. In $954 Hawaii, only 4.77% system to have $527 implemented WSF 2.63% on a statewide $30,000 basis, district $1,654 officials are 5.51% able to provide $834 formal input each 2.78% year as state gradually transitions to a comprehensive WSF funding formula. 17 $50,000 $3, % $1, % Overall, $75,000 WSF would eliminate $4,804 or reduce 6.41% many of $3,127 principal-agent problems 4.17% that exist in current $100,000 public school $6,554 system (see Chapter 6.56% 9). $4, % $150,000 $10, % $8, % $200,000 $13, % $11, % HOW WSF WOULD WORK IN SOUTH CAROLINA Figure 5.5 also shows what average tax rates are for various incomes and taxes under Implementing current tax system weighted in student South Carolina. funding should In right be relatively columns easy it also in shows South what Carolina taxes insofar and as average state tax already rates would uses a be limited if 1959 WSF tax approach tables were to fund indexed public for education. inflation. The As figure provided clearly for by shows 1977 that Education 1959 indexed Finance tax Act rate (EFA) structure state is more allocates uniformly a minimum progressive, base especially dollar amount at higher per levels pupil, of which incomes. encompasses It keeps tax rates spending extremely for low for defined lowest minimum income individuals educational in program state. to an average student. For FY , base student state spending is projected Figure to be 5.5 $2,334 also shows assuming that enrollment current tax of system 691,816. charges EFA all funds, income however, groups more differ in taxes according than to an each indexed district s rate tax schedule. base, with The poorer only exception districts receiving is $5,000 more income money. earner in table. As South Carolina income taxes continue to climb while tax brackets remain stagnant, state becomes a relatively high-tax state. This has a negative impact on 15 Ibid., Ibid., Snell,

14 UNLEASHING CAPITALISM manufacturing In addition property to base tax tax in student in country. spending, In In Figure EFA also we we present provides for effective additional property funding tax tax rates calculated data for according for Souastern to various states, weights for for comparison. adjusted for The grade ranks level, given disability for for states and or are are out out factors. of of all all 50 Kindergartners, 50 states. The net for tax instance, and and effective are weighted tax tax rate 1.3 are are times calculated base based while on on vocational property valued students at at $25 are $25 million weighted ($12.5 at 1.29 million base. in in machinery Thus, as observed and and equipment, by Hassel $12.5 and Roza million (2007), in in inventories, EFA can be and thought and $2.5 million of as a in weighted in fixtures). student Notice funding that that South model Carolina s except effective in one tax crucial tax rate aspect, on on industrial weighted property funds is is over follow children times higher to districts, than but most not necessarily industry-friendly to schools. state, 18 Delaware. Moreover, (Delaware current EFA is is listed funding in only figure accounts because for slightly it it is is more lowest-tax than half state.) of total state funding or about a quarter of overall funding. Remaining state funds are subject to categorical requirements specified by Education Improvement Act (EIA), restricted state grants, and lottery funds. 19 Figure Still, 5.8: as Hassel Industrial and Roza Property argue, EFA es can in serve in Souastern basis of shifting states*, 2007 majority of state education funding to a weighted student system. They explain how this reform could be implemented: State Rank (of (of 50) 50) Net Net Effective Rate South Carolina 11 $1,864, % Mississippi Expanding Education 44 Finance Act s $1,291,050 weighting system to include 2.58% additional groups of students not currently weighted, namely low-income and gifted students; Texas 66 $1,264, % Tennessee Converting categorical funds intended $1,033,544 to serve a specific student 2.07% type into new or existing West Virginia weights in EFA; $833, % Louisiana Converting or categorical funds into $783,407 per pupil funds within 1.57% basic EFA allocation; Georgia $760, % Distributing funds (including those for public charter schools) on basis of each child s Florida new weighted amounts. 20 $677, % Alabama $533, % North Hassel Carolina and Roza identify three types $491,071 of categorical programs, 0.98% concluding that only funds dedicated to services not directly related to K-12 education (i.e., unusual transportation Kentucky $327, % needs) should remain categorical. Funds devoted to serving particular student populations should Virginia be converted to weights while funds tied $241,498 to or priorities (Hassel 0.48% and Roza mention science Delaware education) should 50 be 50 added to base $238,840 pupil allocation. Under 0.48% this model, only 8 percent of current categorical funding would remain as such (see Figure 10.4). Source: National Association of of Manufacturers (2009) * es * measured in in states largest city city only. Importantly, South Carolina s effective tax tax rate is is almost times greater than Georgia s tax, tax, and and almost 44 times greater than North Carolina s. This puts South Carolina at at a a serious disadvantage, in in terms of of its its ability to to attract and and keep industry. Since South Carolina has has highest tax tax in in country on on industrial property, it it should be be no no surprise that that it it has has one one of of lowest per per capita incomes and and economic growth rates in in country. Although it it is is probably not not critical that that South Carolina set set its its tax tax rate rate to to lowest in in country, it it should definitely make it it at at least competitive for for Souast. Since Georgia s rate is is effectively 1.52 percent and and North Carolina s is is just just under 11 percent, a a rate rate at at around 11 percent might be be sufficient to to attract more industry. Working to to reduce various taxes applied to to industry would seriously improve state s competitiveness. Such a a significant reduction in in taxes on on industrial property would obviously lead to to a a reduction in in tax tax revenues on on industrial property, at at least initially. However, overall revenue may in in fact fact increase once growth rate rate in in state begins to to pick up up and and more industry moves into state. Furrmore, if if official tax tax rates are are lowered, n state 18 Hassel and Roza, Hassel and Roza report that EIA funding is controlled by 44 categoricals; restricted General Funds, 26 categoricals; and Lottery funds, 4 categoricals (7). 20 Ibid., 9.

15 Chapter CHAPTER 10: Putting 5: 8: SPECIFIC REGULATORY Children TAX REFORMS First Figure 10.4 Demonstration of How Categorical Funds Could Convert to Per Pupil Funds Presumably original intent of imposing a tax rate schedule with graduated marginal tax rates was to make income tax progressive. However, what progressivity exists in state s income tax structure is due to zero tax on first $2,630 of income, and because of graduated marginal tax rates. However, since marginal tax rate increases over such small steps in income, as shown in Figure 5.5, most of progressivity occurs at lower income levels, not higher levels of income. At higher income levels, average tax rate hardly increases at all. This nature of current tax is directly contradictory to goal of progressivity. So although on surface it appears that tax satisfies vertical equity condition, it really does this only at lower income levels reducing wealth of se lowest income taxpayers, not intended consequence. Figure 5.5: South Carolina income tax: Current tax rates compared to inflation-indexed rates, 2009 able Income $100,000 In light of $6,554 questions regarding 6.56% equity raised $4,877 above, it is important 4.88% to emphasize that Hassel $150,000 and Roza s $10,054 model merely 6.70% converts state s $8,377 existing Source: Hassel categoricals 5.58% and Roza into weights and so does not change priorities with regard to student groups it wants to serve. 21 In $200,000 $13, % $11, % or words, under WSF reform what are now only implied weights would simply be converted into transparent, actual weights. For this reason, debates over how to fund WSF or over how Figure much 5.5 each also district shows what should contribute average tax are rates beside are for point. various Federal incomes and and district taxes under allocations current would tax remain system in same, South with Carolina. most In essential right change columns being it also to shows fund individual what taxes students, and rar average than tax categorical rates would programs. be if Hassel 1959 and tax Roza tables explain: were indexed for inflation. The figure clearly shows that 1959 indexed tax rate structure is more uniformly progressive, especially It is at worth higher noting levels how of much incomes. would It not keeps change tax as rates a result extremely of this low shift for in approach lowest to funding. income individuals Since state. new weights are based on how much South Carolina currently spends to meet Figure needs of 5.5 different also shows groups that of students, current amount tax system of funding charges dedicated all income to se groups more would in taxes than not change. indexed The rate amount schedule. of state The funding only exception received by is most $5,000 individual income districts earner would in not table. As change South markedly, Carolina with income exception taxes continue of a drop to in climb funding while for some tax districts brackets that are remain now stagnant, state becomes a relatively high-tax state. This has a negative impact on 21 Ibid., 10. Current Income Rates/Brackets Average Rate Income Rates/Brackets if 1959 Schedule was Inflation Adjusted to 2009 Average Rate $5,000 $ % $ % $10,000 $ % $ % $15,000 $ % $ % $20,000 $ % $ % $30,000 $1, % $ % $50,000 $3, % $1, % $75,000 $4, % $3, %

16 UNLEASHING CAPITALISM manufacturing particularly property successful tax tax in at in winning country. competitive In In Figure grants or we we obtaining present reimbursement effective property for spending tax tax rates data on for state-funded for Souastern programs. states, Overall, for for comparison. state s funding The ranks priorities given would for for remain states are are same. out out 22 of of all all states. The net tax and and effective tax tax rate are are calculated based on on property valued at at $25 $25 million But ($12.5 simply million transitioning in in machinery to a weighted and and equipment, funding $12.5 formula million is not in enough. in inventories, The next and and $2.5 and million politically in in fixtures). more difficult Notice step that that is South to distribute Carolina s se effective funds to tax tax schools, rate on on rar industrial than property districts. is 23 is over We shall times examine higher this than and or most challenges industry-friendly next section. state, Delaware. (Delaware is is listed in in figure because it it is is lowest-tax state.) IMPLEMENTING WSF: QUESTIONS & POSSIBILITIES Figure 5.8: Industrial Property es in in Souastern states*, 2007 Perhaps State most striking aspect of WSF reform in South Carolina is that Rank (of (of 50) 50) Net Net Effective Rate policy has yet to be enacted. By all accounts, nearly every key stakeholder from governor South to Carolina members of 1 General 1 Assembly $1,864,900 to Education Department 3.73% believes WSF should Mississippi be implemented in South 44 Carolina. Yet $1,291,050 a consensus has not been 2.58% reached regarding details Texas of funding plan, with 66 legislation (H $1,264, ) that would have 2.53% enacted WSF dying in committee during 2009 session. In particular, questions remain regarding following four Tennessee issues: 1) Which categories of funds should $1,033,544 be reallocated via 2.07% WSF formula?; 2) What West weights Virginia should be assigned to different $833,234 subgroups of students?; 1.67% 3) Would districts or schools Louisiana administer WSF distributions?; ) How $783,407 would WSF affect funding? 1.57% Georgia $760, % WHICH CATEGORICALS DOES THE STATE NEED? Florida $677, % Alabama As indicated above, 35 Hassel 35 and Roza argue $533,776 that only 8 percent 1.11% of state funding should remain as categorical funding. They mention, in particular, unusual transportation costs as a category North that Carolina could be retained Or advocates $491,071 of WSF have suggested 0.98% treating food service or pilot Kentucky programs as categorical distributions. $327,100 In experience of districts 0.65% that have adopted WSF, Virginia however, trend 49 has 49 been to shift as $241,498 many categoricals as 0.48% possible to WSF formula. Delaware In Hawaii, for instance, gradual $238,840 transition to a WSF 0.48% mechanism has been accompanied Source: National by an Association annual assessment of of Manufacturers during (2009) which school officials provide input on wher * es * measured in in states largest city city only. reform is on track. Year after year, key stakeholders have concluded that WSF is working and that additional categorical funds should be converted into discretionary Importantly, South Carolina s effective tax tax rate is is almost times greater than Georgia s spending. In course of this review process, Hawaii has developed specific benchmarks tax, tax, and and almost 44 times greater than North Carolina s. This puts South Carolina at at a a that must be met for a categorically funded program to be reallocated to WSF distribution. serious disadvantage, in in terms of of its its ability to to attract and and keep industry. Since South Carolina Similar guidelines for South Carolina would entail requiring that: has has highest tax tax in in country on on industrial property, it it should be be no no surprise that that it it has has one one of of lowest per per capita incomes and and economic growth rates in in country. 1) The funding in question must be provided to all schools; Although it it is is probably not not critical that that South Carolina set set its its tax tax rate rate to to lowest in in 2) The funding must be provided to all schools at a particular level (i.e., all middle country, it it should definitely make it it at at least competitive for for Souast. Since schools); Georgia s rate is is effectively 1.52 percent and and North Carolina s is is just just under 11 percent, a a rate rate 3) The funding must be able to be distributed equitably by WSF formula; at at around 11 percent might be be sufficient to to attract more industry. Working to to reduce 4) The reallocation must actually provide for greater funding flexibility for schools. various taxes applied to to industry would seriously improve state s competitiveness. 24 Such a a significant reduction in in taxes on on industrial property would obviously lead to to a a reduction in in tax tax revenues on on industrial property, at at least initially. However, overall revenue 22 Ibid., 12. may in in fact fact increase once growth rate rate in in state begins to to pick up up and and more industry 23 Hassel and moves Roza acknowledge, into state. The Furrmore, system proposed if if here official would ensure tax tax rates state money are are lowered, follows children, n but state only to district level (14). 24 As adapted from Snell, 141.

17 Chapter CHAPTER 10: Putting 5: 8: SPECIFIC REGULATORY Children TAX REFORMS First Presumably Currently, transportation original and intent food of service imposing are a two tax of rate schedule categoricals with that graduated remain marginal under district tax control rates was in Hawaii. to make Likewise, income economies tax progressive. of scale may However, encourage what similar progressivity policies exists in or in locales. state s Still, income even tax as structure regards to is due such to functions zero tax traditionally first provided $2,630 of by income, school and districts, because schools of can be graduated given marginal option to tax purchase rates. se However, services since from marginal district or tax to hire rate increases anor provider. over such 25 small In short, steps practically in income, any as shown service in actually Figure provided 5.5, most by of a school progressivity for its occurs students at can lower be accounted income levels, for under not higher a comprehensive levels of income. WSF system. At higher Accordingly, income levels, re are average very few tax categoricals rate hardly that increases cannot at be all. eliminated This nature or, of at least, current reevaluated tax is directly so as to contradictory provide for to more flexible goal of funding. progressivity. Thus even So although in face on of pressure surface from it appears lobbyists that and ors tax satisfies to preserve vertical certain categoricals, equity condition, advocates it really of WSF does should this only try at to reallocate lower income as many levels of reducing state s 74 wealth categoricals of se as possible lowest income to taxpayers, WSF formula. not 26 A intended realistic consequence. goal, as Hassel and Roza suggest, would be to reduce categoricals to less than 10 percent of per pupil expenditures. Figure 5.5: South Carolina income tax: Current tax rates compared to inflation-indexed rates, 2009 WHAT WEIGHTS SHOULD BE ASSIGNED? A second question that has stymied WSF reform in South Carolina pertains to different weights given to subgroups of students. Hassel and Income Roza resolve Rates/Brackets this question by if 1959 specifically correlating weights to Current current funding Income levels. These Schedule are ir was recommendations: Inflation Adjusted to Rates/Brackets 2009 able Income Average Rate Average Rate $5,000 $ % $ % $10,000 $ % $ % $15,000 $ % $ % $20,000 $ % $ % $30,000 $1, % $ % $50,000 $3, % $1, % $75,000 $4, % $3, % $100,000 $6, % $4, % $150,000 $10, % $8, % $200,000 $13, % $11, % Figure 5.5 also shows what average tax rates are for various incomes and taxes under current tax system in South Carolina. In right columns it also shows what taxes and average tax rates would be if 1959 tax tables were indexed for inflation. The figure clearly shows that 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for lowest income individuals in state. Figure 5.5 also shows that current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is $5,000 income earner in table. As South Carolina income taxes continue to climb while tax brackets remain stagnant, state becomes a relatively high-tax state. This has a negative impact on 25 Cotton Lindsay touches upon such questions in his report on scholarship tax credits. See Lindsay, Cotton, Fiscal Impact of 2005 Universal Scholarship Credit Proposal, South Carolina Policy Council (March 2005). 26 Hassel and Roza caution: Each categorical program has numerous and varying special interests that are likely to try and protect specific pots of money. In some cases, state legislators responsible for a particular allocation could be its biggest defenders (16).

18 UNLEASHING CAPITALISM Figure Figure : Hassel Hassel & Roza s Roza s Combined Combined Weighting Weighting System System After After Shifting Shifting Categoricals Categoricals into into EFA EFA manufacturing property tax tax in in country. In In Figure we we present effective property tax tax rates data for for Souastern states, for for comparison. The ranks given for for states are are out out of of all all states. The net tax and and effective tax tax rate are are calculated based on on property valued at at $25 $25 million ($12.5 million in in machinery Current and System and equipment, $12.5 million in in New inventories, System and and $2.5 Current System New System million in in fixtures). Notice that that South Carolina s effective tax tax rate on on industrial property is is over times higher than most industry-friendly Existing Existing state, Delaware. (Delaware is is listed in in figure because it it is is lowest-tax state.) categoricals categoricals Existing EFA if delivered Existing EFA if delivered Combined ( ) as a weighted Combined ( ) as a weighted Figure 5.8: Industrial Property student es student in in Souastern states*, 2007 allocation State Rank (of (of 50) 50) allocation Net Net % of Effective New per Rate % of Student Per of New per New of Student South Carolina Per 11 Weight $1,864,900 State pupil 3.73% New State Characteristic Pupil Per Weight Pupil State pupil weight State Characteristic Mississippi Pupil 44 $1,291,050 Funds allocation weight Funds allocation 2.58% Funds Funds All students Texas $2, $1,148* $1,264,358 73% $3, % % All Students $2, $1,148* 73% $3, % Kindergarten Tennessee $ $1,033,544 * 1% 2.07% $ % Kindergarten $ * 1% $ % Primary West Virginia $ $833,234 * 2% 1.67% $ % Primary Louisiana $ $783,407 * 2% $ % % High School $ * 1% $ % High School Georgia $ $760,381 * 1% $ % % Poverty (includes Poverty funds intended (includes Florida for None none $650 $677,683 9% 1.36% $ % funds low performance) intended Alabama None none $650 $533,776 9% $ % % low performance) Gifted (includes North Carolina AP) None none $571 $491,071 2% 0.98% $ % Gifted (includes Kentucky AP) None none $571 $327,100 2% $ % % Vocational Education $ $448 1% $1, % Vocational Various Special Virginia Education $686 Depends on $448 $241,498 1% $1,134 Depends 0.48% on 1.32 student 1% Various Education Special Delaware Categories student Depends disability on $160 $238,840 11% Depends 0.48% disability on student 11% Education Source: Categories National Association student disability of of Manufacturers (2009) $160 11% disability 11% *Existing * es * categoricals measured in were in states not separated largest city city out only. by grade targeted, but this can be done and would yield different weights by grade level. Importantly, South Carolina s effective tax tax rate is is almost times greater than Georgia s As tax, Hassel tax, and and and almost Roza s 44 times work greater shows, than North best strategy Carolina s. would This be puts to retain, South Carolina to extent at at a a serious possible, disadvantage, current in funding terms of levels of its its ability to state to attract already and and keep has industry. place. Since Undoubtedly, South Carolina some has lawmakers has highest will tax want tax in in to use country WSF on on industrial process as property, a vehicle it for it should increasing be be no no funding surprise for that that certain it it has has one groups one of of or programs. lowest per per Such capita considerations, incomes and and economic though, are growth not essential rates in in to country. WSF reform. Although it it is is probably not not critical that that South Carolina set set its its tax tax rate rate to to lowest in in SHOULD country, DISTRICTS it it should OR SCHOOLS definitely CONTROL make FUNDING? it it at at least competitive for for Souast. Since Georgia s rate is is effectively 1.52 percent and and North Carolina s is is just just under 11 percent, a a rate rate at at around A third 11 percent concern might voiced be be about sufficient WSF to to regards attract more extent industry. to which Working districts to to reduce or schools various should taxes oversee applied WSF to to distributions. industry would The seriously key here improve is patience. state s Ideally, competitiveness. WSF reform empowers Such individual a a significant schools reduction to use in in taxes education industrial dollars property to create would individually obviously lead tailored to to a a reduction instruction in plans in tax tax for revenues each student. on on industrial This model, property, however, at at least may initially. not work However, for every school overall or, revenue at least, may not without in in fact fact increase allowing once for a transitional growth rate rate period in in during state begins which to principals to pick up up and and more or industry school-level moves administrators into state. receive Furrmore, additional if if management official tax and tax rates budgetary are are lowered, training. n state

19 Chapter CHAPTER 10: Putting 5: 8: SPECIFIC REGULATORY Children TAX REFORMS First Presumably During 2008 hearings original on intent WSF of before imposing South a tax Carolina rate schedule House, with Department graduated marginal of Education tax rates specifically was to indicated make it income did not tax want progressive. student-based However, funds going what progressivity to individual exists schools. in The state s existing income district-based tax structure funding is due method to should zero tax be on preserved, first $2,630 asserted of income, Sandy and Smith, because department of deputy graduated superintendent marginal for tax policy rates. and However, legislation, since even marginal if total tax money rate increases allocated is over based such on small a stricter steps per-student in income, formula. as shown 27 in Figure 5.5, most of progressivity occurs The at lower education income department s levels, not higher opposition levels to of expanding income. At local higher control income over levels, education average dollars is tax also rate shared hardly by increases district administrators at all. This nature who of may fear, current not tax only is directly a loss of contradictory control, but to also goal loss of of progressivity. ir jobs. As So noted although elsewhere on in surface this book, it appears public officials that always tax satisfies have vertical incentive equity to expand condition, ir it budgets really does and ir this only control. at By lower reducing income reliance levels on reducing categorical wealth funding, of WSF se will lowest eliminate income taxpayers, need for not certain intended district administrative consequence. positions. This is to be expected as more funds are allocated to instruction. Figure Weighted 5.5: South student Carolina funding, income however, tax: is Current not just tax about rates eliminating compared needless to administrative burdens. The most important element of WSF is that it enables individual schools to be creative and innovative inflation-indexed in how y rates, serve ir 2009 students. To use a free market term, WSF encourages schools to be entrepreneurial in using ir resources as wisely as possible to produce best possible outcomes. Income Rates/Brackets if 1959 Thus Fund Current Child Income report makes it clear Schedule that if was WSF Inflation is Adjusted mechanism to for improving school funding, Rates/Brackets success of WSF reform lies in 2009 hands of individual schools receiving this funding. Simply stated, for WSF to be effective, principals must be given authority over a significant portion of overall funding pool. Average 28 Rate able Income Average Rate Toward this end, WSF should be complemented by reforms that encourage principals to be more $5,000 than administrators, $71 but to 1.42% be leaders. Accordingly, $125 state should 2.5% also look at providing $10,000 training and $290 mentoring opportunities 2.90% for principals. $250 No doubt, some 2.5% principals fear changes WSF will bring. But a recent study by American Institutes for Research finds $15,000 $604 that teachers and administrators want 4.03% $377 greater autonomy over spending 2.51% decisions and so support $20,000 WSF by wide $954 margins % Likewise, even $527 National Education 2.63% Association acknowledges $30,000 WSF $1,654 shows promise, 5.51% especially $834 as a means of addressing 2.78% funding inequities. 30 The reality is that principals and teachers are already being held accountable for $50,000 $3, % $1, % school performance. Giving school leaders responsibility over funding programs y know will work $75,000 for ir students $4,804 is essential 6.41% to helping m $3,127 meet se expectations. 4.17% $100,000 Although state $6,554 and district administrators 6.56% are $4,877 still reluctant to relinquish 4.88% control over funding to individual schools, recent budget cuts have encouraged se groups to $150,000 $10, % $8, % increasingly call for flexible funding, which would mean reducing categorical funding restrictions. $200,000 During $13, session, at 6.77% least 50 of South $11,877 Carolina s 85 school 5.94% districts passed a resolution declaring that: Figure 5.5 also shows what average tax rates are for various incomes and taxes under Local current funding tax system decisions in must South be Carolina. made to In support right columns unique qualities also shows and challenges what taxes and presented average by tax each rates student, would classroom be if and 1959 school; tax and tables were indexed for inflation. The figure clearly shows that 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for lowest income individuals in state. 27 Waffling Figure on Student 5.5 also Funding shows Reform, that The Voice current for tax School system Choice, charges South Carolinians all income for groups Responsible more in taxes Government than (June an indexed 26, 2009); rate available schedule. at: The only exception is $5,000 income earner in table. 28 As South Carolina income taxes continue to climb while tax brackets remain Fund Child, 35. stagnant, state becomes a relatively high-tax state. This has a negative impact on 29 Jay Chambers et al., A Tale of Two Districts, American Institutes for Research (October 2008); available at: 30 Fund Child, 30.

20 UNLEASHING CAPITALISM manufacturing Under current property state tax tax law, in in school country. districts In In Figure have limited we we flexibility present in effective expenditure property of most tax tax rates data funds for for disbursed Souastern through states, for State for comparison. Department The of ranks Education, given which for for impedes states are our are out ability out of of all to all states. focus The dwindling net tax resources and and effective in classroom. tax tax rate are 31 are calculated based on on property valued at at $25 $25 million ($12.5 million in in machinery and and equipment, $12.5 million in in inventories, and and $2.5 million This in in fixtures). resolution Notice was also that that supported South Carolina s by South effective Carolina tax tax rate School on on industrial Boards Association property is is over (SCSBA), times whose higher president, than Gerald most industry-friendly Cook, stated that state, current Delaware. funding (Delaware mechanisms listed hinder in innovation figure because and accountability. it it is is lowest-tax Said Cook: state.) Freedom to innovate, coupled with accountability, is an approach worth considering for all public schools. Yet now, while charter schools are free to pursue initiatives that y consider promising and while public officials across state, including Governor, applaud that freedom State local Rank schools, (of (of governed 50) 50) by Net local Net boards, continue Effective to be constrained Rate by a host of legislative mandates that prevent m from using money in ways that make most South sense Carolina for ir communities. 11 Their hands $1,864,900 are tied. Many of state s 3.73% mandates teacher Mississippi training, summer school, 44 character education, $1,291,050 career counselors, 2.58% school nurses and assessments, among many or functions are not just good but necessary to support Texas 66 $1,264, % school s mission. We want those things for all our children. But how much sense does it make Tennessee to fund m if it means removing a teacher $1,033,544 from a classroom? % Figure 5.8: Industrial Property es in in Souastern states*, 2007 West Virginia $833, % Thus, it would seem that resistance to school-level funding is eroding. In addition, Hassel Louisiana and Roza recommend several strategies $783,407 that could be used to 1.57% facilitate gradual transition Georgia from a district-centric funding model $760,381 to a student-centered approach: 1.52% Florida $677, % REQUIRE THAT FUNDS BE SPENT ON SCHOOLS ACCORDING TO HOW MUCH STUDENT REVENUE Alabama THEY GENERATE $533, % North Carolina $491, % South Carolina should require that money generated by a student via new weighted Kentucky funding system be spent proportionately $327,100 on that child s school in 0.65% one of two ways. Funds Virginia could be spent directly; for example, by paying $241,498 salary and benefits 0.48% of teachers working at school. Or funds could be spent indirectly on shared or centrally provided services that Delaware $238, % tangibly benefit school in an equitable fashion; for example, by paying for specialist Source: instructors National who Association serve multiple of of Manufacturers schools. (2009) Even costs for reasonable leadership and district * es * measured in in states largest city city only. operations could be accounted for in per pupil terms to each school to achieve full transparency. Importantly, South Carolina s effective tax tax rate is is almost times greater than Georgia s REQUIRE tax, tax, and TRANSPARENT and almost 44 times REPORTING greater OF than HOW North FUNDS Carolina s. ARE SPENT AT This THE puts SCHOOL South LEVEL Carolina at at a a serious disadvantage, in in terms of of its its ability to to attract and and keep industry. Since South Carolina has has In highest addition tax tax to in continuing country to follow on on industrial and use property, existing it SC it should financial be be accounting no no surprise requirements, that that it it has has one one of of each lowest district per per should capita be incomes required and to and report economic publicly growth (a) rates amount in in of country. funding generated by Although each of its it schools, it is is probably based not not on critical ir student that that South populations; Carolina and set set (b) its its tax tax rate amount rate to to of lowest resources in in country, devoted it to it should each school definitely by student make type. it it In at at addition, least competitive state should for for make Souast. available schoollevel rate expenditure is is effectively reports 1.52 through percent and and use North of In$ite Carolina s 33 and make is is just just it under possible 11 percent, for citizens a a rate rate to Since Georgia s at at around query 11 percent online might financial be be sufficient information to system to attract to obtain more additional industry. information. Working to to reduce various taxes applied to to industry would seriously improve state s competitiveness. 31 A sample Such resolution a a significant is available reduction at: in in taxes on on industrial property would obviously lead to to a a reduction 32 Cook, Gerald, in in South tax tax revenues Carolina schools on on industrial need funding property, flexibility at now, at least Daily initially. Journal However, (February 9, 2009); overall revenue available at: may fact fact increase once growth rate rate begins to to pick and and more industry no/. moves into state. Furrmore, if if official tax tax rates are are lowered, n state 33 In$ite is a financial model used by school districts in South Carolina to collect and analyze data on education spending.