Education reform will require new revenue – here are a few ideas

November 27, 2012 | Economic Opportunity Institute

Given the decision of the Washington State Supreme Court in the McCleary case, which highlighted Washington’s failure to adequately fund education, the new legislature and Governor will soon be looking for new revenue to meet the state’s financial obligation to basic education.

Educational reforms alone will require at least $1 billion in new public revenue in the 2013-15 biennium, with the bill for full implementation of K-12 reform rising to a likely $6 billion by 2017-19. Where could that money come from – without starving the services that protect and raise the quality of life for all?

Here are some small steps aimed at ending special tax preferences and finding progressive rate increases.

end tax preferences

In addition, a 5% capital gains tax with exemptions to exclude middle- and lower-income state residents (as proposed in 2012 in HB 2563), would raise $1.4 billion per biennium – enough for significant progress toward education reform goals.

However, in the long-term more substantive changes will be necessary to bring Washington’s tax structure into the 21st century. The 2002 Tax Structure Study Committee (Gates Commission) and earlier bipartisan commissions have recommended the key elements for a sustainable revenue system, including:

  1. Adding a personal income tax – 43 states have a personal income tax, which helps assure revenue growth as the economy changes, and makes the tax system more fair across incomes.
  2. Lowering the sales tax –will offset the impact of a new income tax for low- and moderate-income households, and promote equity for small and expanding businesses.
  3. Making business taxes more equitable – Washington’s business taxes could be made more fair for small, new, and expanding firms, for instance by allowing deductions for key expenses.

Read more about Washington’s budget and revenue reform options here »

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Posted in State Economy, Tax and Budget

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