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This is a report on the Education Funding Press Conference held by the Washington State Superintendent of Public Instruction Randy Dorn from 10 am to 11 am on Tuesday April 14 2015. In short, Randy called for extending the deadline to fully fund public schools by an additional 3 years from the current 2018 deadline until the year 2021 (at which time they will of course call for another extension of the deadline to 2030 or beyond). School funding in Washington state has already been below the national average for nearly 20 years (since 1997). Apparently this is not a long enough period of time for our elected officials in Olympia to figure out how to restore school funding. In addition, at the press conference, Randy endorsed “adding” state school funding by transferring about one billion dollars from local levy property taxes to the state general fund. This is a proposal advocated by Ross Hunter and commonly called the Levy Swap. The primary purpose of this article is to describe the drawbacks of the levy swap which is actually a one billion dollar increase in property taxes paid mainly by middle class working families. The Ross Hunter/Randy Dorn proposal would still leave Washington as one of the lowest funded most over-crowded school systems in the nation. By first, a review of the press conference.
The press conference was attended by about 20 reporters from the main stream media. To my knowledge, I was the only parent and/or teacher in the room. Here is a link to the video of the full press conference posted on TVW (it takes a while to load):
Here is a link to the details of Randy Dorn’s Education Funding Plan:
The press conference began with an introduction from State Treasurer Jim McIntire who focused in on the fact that the state legislature has thus far ignored the problem that school funding is now unconstitutionally dependent on unreliable and unfair local levies. He said he will talk more about this problem at his own press conference on school funding that will be on Thursday April 16 at 2:30 pm.
Randy Dorn then introduced what he called a “Complete Plan to Fully Fund our Public Schools” by talking about his motivation when he first came to Olympia as a State Representative in 1989. Randy says his motivation was to “make a difference in the lives of our kids.” For the record, here has what has happened to school funding in Washington State during the past 30 years since Randy first came to Olympia in 1989.
#1 Washington state fell from being 11th in the nation in school funding to 45th in the nation in school funding. Washington state is now $4,000 per pupil per year (or $4 billion per year) below the national average in school funding. This has resulted in Washington state having among the highest class sizes and the most over-crowded schools in the nation.
#2 Washington state fell from paying more than 66% of actual school construction and repair costs to paying less than 10% of actual school construction and repair costs. As a consequence of reliance on local school bonds to build schools, billions of dollars in school bonds have gone down to defeat and Washington now faces a $20 billion school construction backlog. More than 100,000 students in our state are forced to spend their school days in poorly ventilated temporary classrooms (one of the highest percentages of unhoused students in the nation).
#3 The levy lid, or the maximum percent of local funding to state funding, as nearly tripled from a levy lid of 10% to a levy lid of 28%. This is one of the things the Washington Supreme Court has said is unconstitutional because it results in a system of rich schools that can pass property tax levies and poor schools that cannot pass property tax levies. Here is a chart on the rise in the local levy lid since 1980:
#4 As a consequence of the above four policies, all of which Randy Dorn voted for while he was in the legislature, local property taxes on middle class homeowners have more than doubled. For example, the total levy revenue collected in 2000 was one billion dollars. Today, the total local levy revenue collected is two billion dollars. The average property tax on homes in East King County have risen from about $2,000 per year to more than $4,000 per year. Many families have been driven out of their homes by this huge increase in local property taxes. The higher the local levy lid went, the worse school funding became in Washington state: From OSPI and US Census and National Center for Education Statistics
Meanwhile as a result of the state legislature granting billions of dollars in tax breaks to billionaires, and the resulting concentration of wealth, also known as the Trickle Down Failed Economics plan, we now have record unemployment and the percent of students in Washington State who live near the poverty line (qualify for Free or Reduced Price Lunch) as nearly doubled from about 30% to about 50%:
So while Randy Dorn certainly has made a difference in the lives of our children, it has not been a good difference. In fact, his past policies have been a disaster for middle class families and for our schools and our children.
The legislature has now been found in “contempt of court” for following the exact policies previously advocated by Randy Dorn which were then and still are a direct violation of the Washington State Constitution. With a track record like this, I was not expecting much from this press conference. But I was surprised by his support for the Ross Hunter Levy Swap as being the “solution” to our school funding crisis.
For the record, I and State Senator Maralyn Chase met with Randy Dorn in 2009 to seek his support for repeal of the Intangible Property tax exemption (now called Senate Bill 6093). Randy decline to support this bill and instead advocated a state income tax proposal which became Initiative 1098 and was defeated by the voters in 2010. Senate Bill 6093 would dramatically lower property taxes on middle class families while increasing funding for public schools by $4 billion per year bringing school funding in our state back up to the national average by requiring billionaires to pay their fair share of state property taxes.
Meanwhile, the Ross Hunter property tax proposal increases rather than decreases property taxes on middle class families while providing very little additional funding for public schools. The key point of the Hunter Levy Swap is that it transfers about half of the current $2 billion per year in local levy funds to the state General Fund. It supposedly does this without raising local property taxes. Here is a graph of the general plan (the exact split is slightly more complex as local property taxes pay for other things in addition to public schools, but this is the general idea).
The Hunter Levy Swap also “resets” the Levy Cap at $2500 per student instead of using a percentage of state funding. In addition to transferring one billion from local levies to the general fund, the proposal would set up another billion dollars in additional local property taxes in some but not all school districts. We have posted a PDF of Ross Hunter’s Levy Swap Proposal on our website, Washington Tax Fairness Coalition (dot) org for those who would like to download it and/or read it online. Here is a link on to Ross Hunter’s proposed Levy Swap Bill:
As I have written about many times in the past, here are the drawbacks of the Ross Hunter Property Tax Swap:
#1: The property tax swap actually increases the levy lid from 28% to 33%:
Ross Hunter would change from the current 28% of state spending to a maximum of $2500 per pupil per year. But since the state currently spends about $7500 per pupil, $2500 divided by $7500 equals a new Levy Lid of 33%. Thus, what Ross is really doing is raising the levy lid was again, this time from 28% of state spending to 33% of state spending. But to hide this fact, he changed the term to be based on maximum dollars per pupil rather than using percent of state spending.
#2: Property Taxes would be increased in middle class school districts but not in wealthy property rich school districts.
The increase in the levy lid from 28% to 33% would result in higher property taxes in most school districts, such as the Snoqualmie Valley, Tahoma and Snohomish School Districts (and any other school district currently at the 28% levy lid) while other more wealthy school districts, such as the Bellevue and Mercer Island School Districts, would not see any property tax increases because they are already “grandfathered” in at a rate above 33%.
Source OSPI Maximum Levy Authority 2014 Report 1030
#3 Property Taxes on Middle Class Homeowners in “Suburban Bedroom Communities” would be increased more than one billion per year. The Levy Swap includes a “Do No Harm” provision. What this means is that school funding in wealthy school districts would not be reduced as a result of this proposal. There would be no harm to wealthy school districts such as Bellevue and Mercer Island. However, in order to provide the billion dollars in new revenue needed to bring the state legislature closer to compliance with the state constitution, rural and suburban “bedroom” communities would see a yet another substantial rise in their local property taxes. The problem is that these communities may be property rich, but they are “dollar poor.” Their property taxes are already too high and should be lowered not raised!
Here is how the Levy Swap will eventually raise taxes on rural and suburban homeowners.
What about lowering the levy lid back to 10%?
One option that would prevent local school districts from raising the local levy back up to $2,000 per year is if the Levy Lid was lowered back to a maximum of 10% – what it was in 1980 before Randy Dorn was first elected. I specifically asked Randy Dorn before his press conference if he would support lowering the Levy Lid back to 10%. He said he did not and that his proposal did not have a specific limit to the levy lid.
#4 The Ross Hunter Property Tax Swap does not actually guarantee an increase in school funding. In fact, school funding may actually go down!
The property tax swap raises the amount of revenue that will go to the state general fund by about one billion dollars by taking away about one billion dollars from the amount currently collected by local school districts. Put another way, of the two billion dollars currently collected in local levies, the state would take one billion or about half of the current local levy funds. However, 100% of these local levy funds go towards funding schools and paying teachers. In transferring this billion dollars to the state general fund, there is no telling what the state will actually spend this revenue on. The legislature could invest the entire amount on public schools or it could invest some portion of it on something else. Any amount invested on something else would result in a reduction of total funds going to our public schools.
#5 The Levy Swap does nothing to address the unfairness of our state tax structure.
Washington state has the most unfair tax structure in the nation. Our middle class pays far above the national average in state taxes while billionaires in our state pay much less than the national average. In fact, by increasing taxes on middle class school districts, while not increasing taxes on wealthy homeowners in Bellevue and Mercer Island, the levy swap would actually make our unfair state tax system even more unfair.
#6 The only real solution to the school funding crisis is Senate Bill 6093 which repeals the 1997 tax break exempting property of the wealth from our state property tax. This would restore school funding in our state to the national average and make our tax structure more fair.
Here is a list of seven benefits of Senate Bill 6093 over the current proposals of the State House and Senate and over the Levy Swap proposal.
For more information on the benefits of the School Funding Through Tax Fairness Act, visit our website: http://washingtontaxfairnesscoalition.org/
Originally published at Washington Tax Fairness Coalition
One hundred and fifty years ago today, Robert E. Lee surrendered his troops to Gen. Ulysses S. Grant, bringing to an end the Civil War. What had begun as a sectional war by which the South sought to preserve and expand slavery into the western territories, ended with the collapse of the South and the liberation of 4 million slaves.
The end of the war and the end of slavery left former slaves voteless, and powerless … but free. With Reconstruction, blacks did gain the vote and elected many of their own to offices in the South. This was only possible with federal intervention and occupation of the Southern states. As soon as the federal government withdrew from the South, the white establishment re-asserted political and economic power. Anti-black terrorism in the guise of the Ku Klux Klan spread across the South, blacks were barred from voting by laws passed by white-dominated legislatures, poll taxes, intimidation and fear. Jim Crow was embedded in the politics and economy of the South for almost 100 years.
It took the Civil Rights movement, occurring when many of us or our parents were kids or young adults, to upend the segregation, intimidation and voter restrictions of the South. The progress of that movement was only possible with federal intervention and federal oversight of Southern election practices and rules and customs. Political changes brought new educational and economic opportunity to African Americans, as well. This is our history within our lifetimes.
We tend to think that is all water under the bridge. But think of the Supreme Court’s current ruling which prevents the Department of Justice from oversight of election laws and the subsequent voter ID laws put in place in North Carolina, South Carolina, Tennessee, Mississippi, Alabama, Florida and Wisconsin, among other states.
This virus of prejudice is not limited to the South. We see it in our own state, with arrests for “driving while black,” with disproportionate sentencing and incarceration of young men of color, with the accelerating income gaps among the wealthy, the upper class, and the rest of society, with the public disinvestment in the higher education institutions that have provided pathways of progress for millions of poor and working-class young people in the past. We also see inequity based on race in election law and election outcomes in our state.
Consider Yakima, a city in which 2 out of every 5 residents is Latino, and yet in which no Latinos there have ever been elected to the city council or the school board or the Legislature. Because of its at-large elections, the city locks out minority candidates who would get elected if voting was by district. Now the U.S. Department of Justice has ordered Yakima to re-structure its election districts to make possible the fair representation of Latino voters.
Yakima’s practice of having district primary elections to select general election candidates who then run at-large is common throughout the state. And it tends to make winners out of mainstream (and white) candidates and leave everyone else on the margin. That points to the need for a statewide voting rights act that will prevent this sort of sidelining of people when their ethnicity and where they live fold together. State Rep. Luis Moscoso, D- Mountlake Terrace, developed House Bill 1745, the Washington Voting Rights Act, to give citizens a legal cause of action to obtain the right to voting and representation, if current election districts block fair representation. The legislation would enable local authorities to redraw election district lines to enable fair elections and not be in violation of the federal Voting Rights Law.
Representative Moscoso’s bill is a straightforward law, remedying the denial of representation and increasing the utility of the voting franchise for those of our society who are the least powerful. Elections are not supposed to be mere window dressing to make us look like a democracy. With free and fair voting, they are the essence of democracy. Voting is the fundamental expression of our democracy when the outcomes are not predetermined by race, privilege or practice. That’s why we need the Voting Rights Act.
Originally published at the Everett Herald
Recently, both the House and Senate have proposed “band-aid” budgets that ignore a direct order from the Washington Supreme Court to fully fund public schools. Both budgets also ignore the will of the voters to lower class sizes. Both budgets continue to give away billions in tax breaks to billionaires while depriving our state’s one million school children of their constitutionally guaranteed right to an adequate education. Washington state used to be 11th in the nation in school funding. Today, Washington is $4,000 per child or $4 billion per year BELOW the national average in school funding. As a consequence, our children are forced to endure some of the lowest funded and most over-crowded schools in the nation.
There is another option. Senate Bill 6093, the School Funding Through Tax Fairness Act, sponsored by Senators Chase and McAuliffe, would provide an additional $4 billion per year to restore school funding and lower class sizes in our state to the national average by repealing a single 1997 tax exemption used by the wealthy to avoid paying their fair share of state taxes.
Comparing Senate Bill 6093 to the House and Senate Band-aid Budgets
Here is a table comparing Senate Bill 6093 to the House and Senate Band-aid Budgets.
Senate Bill 6093, the School Funding Through Tax Fairness Act is a simple solution to the school funding crisis in Washington state which raises billions in state revenue without raising the tax burden on working class families. This report will show that the underlying cause of our state’s school funding crisis is the lack of fairness in our state tax structure. In fact, the reason our state has among the lowest school funding in the nation is that Washington also has the most unfair tax structure in the nation. While the poor and middle class pay much more than the national average in state taxes, our wealthy pay far less than the national average. The only way to have adequate school funding is to insist on having a fairer tax structure by requiring the wealthy to pay their fair share of state taxes.
In September 2014, Supreme Court Justice Charles Johnson proposed that the Washington Supreme Court declare all 650 tax exemptions worth more than $30 billion annually as illegal because they make it impossible for the state legislature to comply with its constitutional duty to fully fund public schools. Justice Johnson proposed nullifying all $30 billion in tax breaks to provide the additional $4 billion needed to fully fund schools – and then only after public schools are fully funded, allowing law makers to restore whatever tax breaks they wants with the remaining $26 billion.
Thomas Ahearne, attorney for the McCleary lawsuit, agreed with this solution. Ahearne said “It is unconstitutional to give away money in the form of a tax exemption in place of amply funding schools.”
But the truth is that there is no need to repeal all 650 tax breaks. Repealing just one of the tax breaks, the largest of the bunch, called the 1997 Intangible Tax Exemption, would provide all of the needed funding and also restore a fairer tax structure at the same time!
What is Intangible Property?
Tangible property is property you can touch –such as homes and commercial buildings. Intangible property includes all other forms of wealth – such as stocks, bonds and computer programs. With the concentration of wealth in the hands of the very rich, the value of intangible property is now much greater than the value of tangible property.
How much does the intangible property tax exemption cost our State?
In 1997, a change in our tax structure made intangible property exempt from our State’s 1% Property tax. According to the Washington State 2008 Tax Exemption Report, this intangible property tax exemption is the single largest tax exemption. In 2008, it was valued at nearly $4 billion annually. Currently, it is as much as $8 billion annually. By comparison, funding for our public schools for one million school children is also $8 billion annually. So we spend as much on this single tax break for the rich as we do on educating our state’s one million school children.
The failure of our current state legislature to adequately invest in our public schools is not only contrary to our state constitution, it is harmful to our democracy, to our economy and to the future of our children. Washington state used to be 11th in the nation in school funding. However, in 1997, the state legislature passed senate bill 5286 exempting all intangible property from our state property tax. This massive tax loop hole has given billions of dollars in tax breaks to our richest citizens every year during the past 18 years by exempting over one trillion dollars of “intangible property” from our State property tax.
Since 1997, this tax break has been used to funnel billions of dollars per year away from our public schools and into the pockets of our State’s wealthiest citizens. As a consequence, Washington State school funding has plunged from 11thin the nation to 45th in the nation. The plunge in school funding since 1997 closely parallels a related plunge in State revenue. Washington State Revenue as a Percent of Income has declined dramatically during the past 20 years:
In 1996, Washington State was 12th in the nation in State income and in State taxes as a percent of income. However, by 2005, our State tax rate as a percent of income fell to 37th in the nation. Currently, the national average for state and local taxes is 10% of income while state and local taxes in Washington state is only 9% of income. This does not sound like much of a difference – but it comes to $3 billion in revenue less per year! Source: Washington State Department of Revenue http://dor.wa.gov/docs/reports/2008/Compare06/Table3.pdf
We would need to collect an additional four billion dollars per year in revenue just to return to the national average in State taxes. This tax exemption for the wealthy is the primary reason that school funding in our state is $4 billion per year below the national average and getting worse every year.
Senate Bill 6093 would repeal this huge tax break for the wealthy and invest $4 billion per year in public schools to restore school funding in our state and lower class sizes in our state back down to at least the national average. In this report, we will explain the many benefits of Senate Bill 6093, the School Funding Through Tax Fairness Act.
Two Decades of Tax Breaks for the Rich have caused Two Decades of Decline in Public School Funding
During the past two decades, since the intangible property tax exemption in 1997, our children have been forced to endure some of the lowest funded, most over-crowded schools in America. Washington is 45th in Per Pupil funding adjusted for the cost of living. Washington is 46th in education spending per thousand dollars of income.
US Census Bureau, Public Education Finances, 2012, published May 2014. Washington spends about $40 per $1,000 or 4% of income. The national. average is about $50 per thousand or 5% of income. http://www2.census.gov/govs/school/06f33pub.pdf. See Table 12, page 12. As a result, Washington is also 46th in the nation in average class size according to the National Center for Education Statistics (NCES).
Washington School Funding as % of National Average
For the past 18 years, our State has fallen far below the national average in school funding. We are now about $4,000 per pupil below the national average. $4,000 per pupil equals $4 billion per year just to restore school funding in our state to the national average. (US Census Bureau, Public Education Finances 2012).
School Funding increased in the rest of the nation, but plunged here in Washington State during the past 20 years
While other States have recognized the need toinvest more in their publicschools, our State hasreduced spending on public schools. Since we have about one million students in our State, it will take $4 billion dollars per year to restore school funding in our State to the national average. This would permit Washington State to hire 40,000 more teachers to restore national average class sizes.
As other states invest more in there schools every year, the gap between our state and national average school funding has grown worse every year.
Decades of Decline in School Construction Funding… School Construction and Repair Funding has also plunge by BILLIONS of dollars
Hiring tens of thousands of additional teachers will also require building tens of thousands of additional classrooms. Sadly, not only has our legislature failed to provide adequate funds for operating schools, but they have also failed to supply funds for the repair and building of schools. In particular, our Legislature has failed to help growing communities build urgently needed schools. While the legislature claims to “match” up to 50% of school construction costs, the Legislature’s distorted school construction “formulas” result in a “match” of as little as 3% of actual school construction costs. As a consequence, over half of school construction bonds have gone down to defeat in the past 14 years and 10% of our one million children now forced to spend their school days in unhealthy portable boxes. (Washington State 2007 School Construction Task Force).
The history of school construction and repair funding in Washington State during the past 20 years mirrors the history of school operation funding in that there has been a steady decline in State funding for school construction. Whereas our State legislature historically provided more than 66% of the actual construction costs of public schools in the 1980’s, State funding has fallen to below 10% of actual costs during the past 14 years. Compared to a national average spending on school construction and repair of $1,000 per pupil per year, our state legislature now allots less than $300 per year per pupil for school construction and repair- with local homeowners forced to pick up the difference!
State % Match of Actual School Construction Costs 1986 to 2014
Source: 2008 OSPI School Construction Transparency Study
The national average per pupil cost for school construction and repair is about $1,000 per pupil per year. The Superintendent of Public Instruction requested $1.6 billion per year ($1,600 per pupil per year) to build thousands of classrooms needed to support smaller class sizes. Yet the 2015 Senate proposal only included $120 per pupil – shifting over 90% of the cost of building and repairing schools onto the backs of local homeowners – who have already seen their property taxes DOUBLE since 1996 due to the failure of the state legislature to pay for school construction!
Due to the lack of state school construction funding, since 1996, more than $20 billion in school bonds have gone down to defeat.
More than $12 billion in school bonds have been passed – costing local homeowners more than $10 billion in additional property taxes. Most of this has been spent on temporary emergency classrooms forcing students to spend their school days in unhealthy portable classrooms.
Fewer permanent classrooms were built in 2005 to 2014 than at any point in the past 30 years. Due to the $20 billion school construction backlog, in 2015, OSPI requested $1.6 billion in build urgently needed permanent classrooms. Sadly, the Governor’s proposal was only $300 million and the Senate proposal was only $120 million.
This decline in State Matching funds has resulted in a transfer of this funding burden from the State to local home owners via an increasing dependence on local school construction bonds. Like with operating costs, the State’s failure to help fund school construction has led to a dramatic increase in local school bond and levy costs which in turn have led to a rapid rise in local property taxes. This unfair tax burden increase on middle class homeowners is as high as $2,000 additional dollars per year on the average home in King County. For example, in 2014, residents in King County pay on average $4,507 annually in property tax. This is more than twice what we paid in property taxes in 1996. This dramatic rise in property taxes can best be seen in the chart of total King County Taxes since 1996. The total property tax collected has more than tripled even as funding for schools and other services have been slashed:
Source: 2015-2016 King County Issue Paper General Fund Financial Situation
Years of Broken Promises Led to 2014 Contempt of Court Ruling
In 2009, our state legislature passed the “Education Reform Act” promising to restore school funding to the national average by 2018. However, they failed to provide any funding to actually keep this promise. Instead, our schools have continued to fall further and further behind the national average. As a consequences of these years of broken promises, in 2014, the Washington Supreme Court, for the first time in the history of our state, held the Legislature in Contempt of Court for violating our State Constitution and failing to make “steady progress” towards restoring school funding. Also in 2014, the voters approved Initiative 1351 which requires steady progress to reducing class sizes in our state down to the national average. Steady progress would require more than $2 billion per year in additional school funding:
It would take nearly $4 billion per year in additional funding annually just to restore school funding in our state to the national average – with another $1 to $2 billion annually to restore school repair and construction funding to the national average.
Where will this $5 to $6 billion in additional state revenue for school funding come from? The legislature has struggled to find a way to solve this problem. Thus far, only minor “band aid” solutions have been proposed. Yet the future of one million children depends on our finding a way to solve this problem to fully fund our public schools. On March 27, 2015, the Washington State House proposed a “Band Aid” budget that providesless than$700 million per year in additional school funding. This is less than $700 per pupil per year. (See page 25, House Summary). On March 31, the State Senate proposed a “Band Aid” budget that also provides less than $700 million per yer in additional school funding. Either proposal only brings per pupil annual funding to about $8,300 – $3,400 per pupil per year below the 2014 national average of $11,700.
The House & Senate Band Aid Proposals do not comply with the 2014 State Supreme Court “Steady Progress” Order or with Initiative 1351 Steady Progress Requirement.
It would take $5,000 per pupil per year (or $5 billion in additional state funding per year) to bring school funding in Washington to $12,700 per pupil as required by the Washington Supreme Court, the Education Reform Act and Initiative 1351.
The difference between current school funding levels in Washington state and the national average is even greater when you add the fact that Washington state only pays $200 per student for school construction and repair while the national average is $1,000 per pupil. This raises the 2015 National Average total school funding to $13,000 per pupil while the 2015 Washington State House and Senate are only proposing to spend $8,500 per pupil. It would take $4,500 per pupil ($4.5 billion per year) in additional state funding to meet the 2015 total national average spent per pupil on school funding.
The Underlying Cause of our School Funding Crisis… A Massive 1997 Tax Break for the Super Rich!
We have not always had the lowest school funding in the nation. In 1997, Washington was near the national average in school funding. Something happened in 1997 to cause a huge plunge in state revenue and school funding. Where did all of the money go? For the answer, see the 2008 Washington State DOR Tax Exemption Report, Summary List.
The largest tax exemption is the “Intangible Property Tax Exemption.”This single exemption was responsible for $7 billion in state tax breaks per biennium or $3.5 billion in state tax breaks per year in 2008. This makes this single tax break much larger than any other tax break. The law allowing for this tax break is RCW 84.36.070. http://apps.leg.wa.gov/rcw/default.aspx?cite=84.36.070
Due to a rapid rise in the concentration of wealth in the hands of the richest one percent, and with nearly all of this wealth being in the form of intangible property, the amount of lost revenue due to this tax exemption has skyrocketed since 1997 to the point where it is now causing a loss of state funding of more than $4 billion per year.
Currently, our state taxes tangible property, such as houses, at a rate of one percent a year. By contrast, intangible property, such as stocks and bonds, are not taxed at all. The School Funding Through Tax Fairness Act is a fair and simple solution to the school funding crisis. It provides more than fourbillion dollars per year in additional funding for our public schools, without raising taxes on our middle class, by repealing the 1997 tax loop hole on intangible property, such as stocks and bonds, from our State property tax (see 1997 ESSB 5286). This tax loophole gave billions of dollars in tax breaks to our richest citizens every year during the past 18 years. Historically, intangible property accounted for a very small percent of all property. However, with the concentration of wealth in the hands of the richest one percent, intangible property now account for over 70% of all property. Over 90% of intangible wealth is owned by the top one percent of our richest citizens. It is time for a fairer property tax structure.
It is no mere coincidence that our State has been short changing our public schools by billions of dollars a year ever since. As a direct result of this massive and unwise State tax give away, as well as the federal tax cuts since then, the wealth of the richest one percent of our population has DOUBLED in the past 20 years from 20% of our total wealth to 40% of our total wealth.
In the face of the current school funding crisis, we can no longer afford this tax give away for the super rich while our school children get the shaft. The School Funding Through Tax Fairness Act would exempt all retirement accounts and all personal intangible property up to $200,000. It thus only applies to the richest 1% of our citizens. It would not even harm millionaires as they could deduct their state taxes from their federal taxes. So this bill is really a transfer of four billion dollars from the federal tax rolls to the state tax rolls.
The School Funding Through Tax Fairness Act would also create over 80,000 new jobs in our State, bring school funding back up to the national average and restore a fairer and more stable tax structure.
School Funding Through Tax Fairness Act Promotes Home Ownership
The School Funding Through Tax Fairness Act would also reward middle class home ownership with tax breaks for middle class homeowners instead of promoting stock market speculation with tax breaks for the intangible property of billionaires. Let’s compare the current tangible property tax of a typical King County homeowner to the world’s richest billionaire who also lives in King County. A typical family in King County owns a $300,000 home on which they owe $200,000 and pay $4,000 in property taxes. Their combined income before taxes is about $50,000 and their combined net worth is $200,00 – $100,000 in retirement savings and $100,000 in home equity. They not only pay property tax on their $100,000 equity in their home – they pay property tax on the $200,000 in home value owned by the bank! Their property tax bill is currently 8% of their total combined income. Under the School Funding Through Tax Fairness Act, each parent would receive a property tax exemption for $200,000 – lowering their property tax bill to ZERO and saving the family $4,000 per year and lowering the percent of their income they pay in property taxes to 0% of income.
By contrast, Bill Gates has an income of over $10 billion per year and a total net worth of over $100 billion – nearly all of which is in the form of intangible property such as stocks and bonds. Therefore Bill Gates pays less than one percent of his income in property taxes. Under the School Funding Through Tax Fairness Act, Bill Gates would pay a property tax of about one billion dollars per year – or 10% of his annual income – but he could also deduct the entire one billion dollars from his federal taxes – so he is still really paying almost nothing!
Since our State revenue is billions of dollars lower than the national average, our problem is not out of control State spending, but out of control State tax breaks for millionaires.
In shifting the tax burden to our middle class homeowners, and causing the firing of thousands of public servants, these massive tax exemptions for the rich do not create jobs. Instead, they cost jobs. We do not have an “out of control” State spending problem… We have an “out of control” tax breaks for millionaires problem. Meanwhile because of tax breaks for the rich, our teachers are paid LESS in real dollars today than they were 20 years ago!
These ever-increasing “tax shifts” of the tax burden away from millionaires and onto our middle class homeowners have led to increases in middle class taxes. In particular, the property tax burden on our middle class has skyrocketed in the past 14 years as the ratio of commercial to residential tangible property has shifted from about 50-50 in 1997 to 66% residential to 33% commercial by 2006.
Source: Washington State Department of Revenue http://dor.wa.gov/docs/reports/wa_tax_system_11_17_2004.pdf
When $100 billion dollars of commercial property is exempted from property taxes, residential property taxes must go up even if State and local spending remains the same.
As a consequence of these tax break for millionaires, and tax shifts to our middle class, our middle class now pay much more than the national average in State taxes while millionaires in our State pay much less than the national average. Working families see their tax bills go through the roof and they naturally assume that State spending is “Out of control.” But what is really out of control is tax breaks for millionaires. Because of all the tax breaks they get, millionaires now pay less than 3% of their income in State taxes. Meanwhile, our poor and middle class pay State taxes at a rate of 12% or more. We have allowed our State to become a tax haven for millionaires. Those who can afford to pay the most are paying the least. Meanwhile, those who can afford to pay the least pay the most. As a consequence of these tax breaks for millionaires, in just the past 10 years, the richest one percent have gone from owning 20% of our nation’s wealth to owning 40% of our wealth.
This Act would place a referendum before the voters asking to repeal the current exemption on intangible property from the State property tax and tax intangible property at the same one percent rate as tangible property. Retirement accounts and personal intangible property up to $200,000 not in retirement accounts would be exempt. So closing this tax loop hole would only increase taxes for 5% of our citizens. The other 95% would see a reduction in their State taxes. Now is the time to begin a public discussion over the best way to balance the State budget while still protecting the future of our children and our communities. Funding our public schools should be more important than protecting tax breaks for millionaires. We hope the public and the press will give this Bill a fair hearing. With the serious nature of our current school funding crisis, it is time to put all options on the table and begin a public discussion over the future of our schools and our State.
Originally published at Washington Tax Fairness Coalition