State Taxes:Unfair and Inadequate

TEF Lessons for Members and CitizensLesson 5

5-1

Objective:

Participants will gain an understanding of how their state tax structure is harmful to poor and middle class members of their community, while simultaneously failing to bring in adequate funds for public education. Participants will explore what can be done about this.

5-2

As a group can we agree that we will:

1) Respect and value differences of opinions and varying levels of knowledge

2) Be attentive

5-3

Schools are being held accountable for results…

When they lack the capacity to deliver those results…

When funding is inadequate and inequitable…

When tax structures are out of sync with the economy…

School Capacity

School Funding

Economy & Tax Structure

Public Support

And not everyone is aware.

Accountability

MAKE THE TEF CONNECTION

5-4

Who pays the most state and local taxes

in Arizona?

5

Who Pays State & Local Taxes?Middle and low-income families pay a higher portion of their income in state & local taxes than wealthy families.

0%

2%

4%

6%

8%

10%

12%

14%

Bottom 20% Second 20% Middle 20% Fourth 20% Top 15% Top 4% Top 1%

Source: “Who Pays? A Distributional Analysis of the Tax System in All 50 States,” 3rd Edition. Institute on Taxation and Economic Policy, 2009.

5-6

3 TAX STRUCTURES

• Progressive tax = one that takes a larger share of income as the taxpayer’s income rises.

• Regressive tax = one that takes a smaller share of income as the taxpayer’s income rises.

• Flat rate tax = income tax would go up exactly in proportion to income. However, what is often advocated as a flat tax is to tax everyone at the same rate, such as the sales tax, which is actually neither flat nor fair.

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“…[T]he degree to which the… taxation system has tilted toward the rich and away from the middle class in the last ten years is -- is

dramatic, and I don't think it's appreciated. And I think it should be addressed.”

“There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning."

NBC Nightly News, October 29, 2007; see http://www.cnbc.com/id/21553857/

Warren Buffett, One of the Wealthiest Men in

America

5-8

Regressive Taxes: A Triple Impact on Public

Education1. Creates more poverty2. Poverty increases education

funding needs3. Education funding is reduced as a

result of the the lower tax revenues of regressive taxes.

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What can be done?

A few simple reforms would transform the state’s ability to raise more funds while simultaneously REDUCING the overall tax liability of many taxpayers.

More funds available for education AND lower taxes!

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If we don’t reform, we are stuck with:

• More reliance on local property taxes• More reliance on user fees (nickel and dimed), and/or sales tax• BUDGET CUTS

11

The way the system is set up, we’ll fall short of necessary funds every few years. Sound familiar?

The Benefits of Moving from a Regressive to a Progressive Tax

Structure:• Everybody pays their fair share instead

of taxing the poor and middle class more than the wealthy.

• Provides more funds for investing in education.

• Improved education promotes economic development.

5-12

Schools are being held accountable for results…

When they lack the capacity to deliver those results…

When funding is inadequate and inequitable…

When tax structures are out of sync with the economy…

School Capacity

School Funding

Economy & Tax Structure

Public Support

And not everyone is aware.

Accountability

MAKE THE TEF CONNECTION

5-13

REFLECTION

1. What stands out in your mind from today’s lesson?

2. What does this mean for you? For your students?

3. How might you act on this knowledge or awareness?

5-14

A few examples…

This video address from Alabama EA President, John Wright.

Alabama EA sheds light on corporate tax avoidance

in Alabama

Detroit News, Friday, July 25, 2008

MEA Press Release: Drop-outs One Too Many, April. 4, 2008

Honolulu Advertiser, Dec, 2006Honolulu Advertiser, Feb. 2007

Iowa State EA News Article Kentucky EA - School Funding Statement.

Michigan’s Business Tax Incentives: A study commissioned by MEA and NEA to improve the quality of the debate on business tax incentives.

Mississippi EA op-ed piece.

State Affiliate TEF Websites: Colorado, Illinois, Michigan, Mississippi, New Jersey, Oklahoma

States Facing Budget Shortfall – Center for Policy and Budget Priorities (CBPP) reports state fiscal profiles.

State-by-state tax news and policy analysis provided by the Institute of Economics and Policy Analysis (ITEP).

Economic Policy Institute’s (EPI) new report analysis rank states by overall unemployment as well as the change seen since the start of the recession in December 2007.

Enriching Children, Enriching the Nation show state returns in budget, salary, crime reduction by investing in Pre-K thru 12.

Find out how much Wal-Mart is costing your state in subsidy deals, healthcare cost, and property tax appeal appeals.

Combined Reporting, How Does Your State Stack-Up? Institute on Taxation and Economic Policy (ITEP) This reporting requires multi-state corporations to report the income earned by both the parent corporation and all of its subsidiaries and to determine their income tax liabilities on that basis.

Good Jobs First state-by-state corporate subsidy websites.

Studies supporting TEF concepts:

• The Effects of State Public K-12 Expenditures on Income Distribution

• K-12 Education in the U.S. Economy

• Protecting Public Education from Tax Giveaways to Corporations.

• School Funding, Taxes and Economic Growth

• TEF Series

Why invest in education makes sense:

Enriching Children, Enriching the Nation

Corporate abuse:

The Great American Job Scam - corporate tax dodging and the myth of job creation.

Your Tax Dollars At Work…Offshore - foreign outsourcing firms are capturing state government contract.

No More Secret Candy Store - A grassroots guide into investigating corporate subsidies.

Publications1 2State affiliates in TEF Action

3

TEF Tools and Resources

State-SpecificData Sources

TEF Website: http://www.nea.org/tef

5-15

NEA Information on establishing a social networking site to use as an organizing tool.

Others are: (http://www.ning.com/ ) and (http://www.groupsite.com/)

http://www.faireconomy.org/tfoc to locate your state’s tax fairness organizing collaborative. These groups are located in 21 states.

Community Organizing• Business Outreach

Sample Political Action Tools

• Corporate Legislation• TEF Model Legislation

Customizable Tools4 Other

Useful Links5Introducing aNew TEFInteractive Tool

6

TEF Tools and Resources

www.nea.org/tef

TEF Website: http://www.nea.org/tef

5-16

U.S. PIRG on Countdown. Olbermann talks about U.S. PIRG's report "Tax Shell Game.”

Free Lunch, Corp Welfare, Bill Moyers and David Cay Johnston

(9:49)

David Cay Johnston - A History of Government Subsidies (3:08)

David Cay Johnston - Are Government Subsidies Unfair? (4:43)

David Cay Johnston - A Moral Argument for Progressive Taxes (3:04)

Videos

PBS Now, "Taxing the Poor" ((26.03)

Wal-Mart Subsidies (7:48)

Warren Buffett's Tax Rate is Lower than His Secretary's (4:39)

TAXES: Warren Buffett - Rich Taxed Too Little, Poor Too Much (5:17)

Eye To Eye With Katie Couric: Buffett's Tax Code (CBS News) (1:40)

On Taxes…7 On Economic Policies8 Funding for

Schools9

Other Resources

Access Quality Education: School Funding Litigation A National Network of Advocates Involved in Education Finance Litigation,

Abbott vs. Burke is the New Jersey

Supreme Court ordered a set of education programs and reforms widely recognized to be the most fair and just in the nation.

Videos

5-17

“Our lives begin to end the day we become silent about things that matter.”

— Martin Luther King, Jr.

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