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Research & Commentary: Throwing Money at K–12 Education will not Improve Outcomes

September 19, 2019

In this Policy Tip Sheet, Matthew Glans and Lennie Jarratt discuss a new ballot initiative in Idaho that would increase taxes on both high-income Idahoans and corporations in the state to raise funds for K-12 education.

In an effort to increase education funding, Reclaim Idaho, the group behind Idaho’s recent Medicaid expansion initiative, has introduced a new ballot initiative—“Invest in Idaho”—that would increase taxes on both high-income Idahoans and corporations in the state.

Under the proposed ballot initiative, the top personal income tax bracket would be increased by around 3 percentage points, to 9.9 percent on individuals making more than $250,000 and married couples making more than $500,000. The corporate income tax rate would also be increased, from 7.4 percent to 8 percent. The supporters of the ballot initiative estimate the increased taxes would raise about $170 million annually for education, which would be dedicated to K–12 public schools.

Although Reclaim Idaho asserts the changes would impact fewer than 5 percent of Idahoans, one important point lawmakers should remember about corporate taxes and regulatory costs is that they are not really paid by companies, but by small business owners operating as S-corps owners, workers (through lower wages), and customers (through increased prices). According to the Tax Foundation, workers bear 50–100 percent of the corporate income tax burden. Furthermore, corporate taxes are especially harmful to economic growth because capital can easily be moved to a lower-tax state or out of the country.

Relying on a fluctuating tax with a small base can lead to larger budget deficits than broader and flatter tax systems. Supporters of the new tax argue large-scale relocation by wealthy taxpayers is not likely to occur, yet they only need to look at the negative effect of Maryland’s millionaire tax, which provides a stark example of what a new tax’s effect would be. In 2009, Maryland created a millionaire tax projected to raise an additional $106 million. Instead of providing the expected new revenue, by the next year, the number of people in the state reporting incomes of $1 million or more fell by one-third.

Although proponents of the new tax claim it is necessary to improve the quality of Idaho’s public education system, evidence demonstrates more education funding often does not improve educational outcomes. For example, real spending per student nationwide has increased by 23.5 percent over the past decade, but education outcomes have not improved. Scores on the National Assessment of Educational Progress test have remained stagnant despite record spending. In a Cato report on school spending found only a 0.075 “correlation between the spending and academic performance changes of the past 40 years, for all 50 states.” This correlation is so slight it is described as “essentially no link between state education spending.”

Instead of throwing more money at the problem, Idaho residents should demand increased educational opportunities for children and families. Overwhelming evidence shows that education freedom improves student safety, produces better education outcomes, increases parental satisfaction, and increases per-pupil funding for the students choosing to stay in their traditional public school. This can be accomplished through a variety of measures. One solution is education spending accounts (ESA), which are private accounts managed by parents that are used on educational expenses for their child. Parents can use the funds to pay for online classes, private school tuition, personal tutors, books and other curricular materials, or even used to save for higher education. ESAs would allow all Idaho families to meet their child’s educational needs—and to do so at a lower cost.

Rather than increase taxes on businesses and higher earners and inhibiting economic growth, Idaho’s elected officials should focus on making the state a more attractive place for businesses and workers, a goal that would best be accomplished by restraining spending, lowering tax rates, and reducing unnecessary regulations.

The documents cited below examine millionaire taxes and their history of failing to shore up budgets and increase revenue.
 

Does Spending More on Education Improve Academic Achievement?
https://www.heritage.org/education/report/does-spending-more-education-improve-academic-achievement
Dan Lips and Shanea Watkins of The Heritage Foundation discuss the rising cost of education and whether increasing education spending has improved education outcomes. “Taxpayers have invested considerable resources in the nation’s public schools. However, ever-increasing funding of Education has not led to similarly improved student performance. Instead of simply increasing funding for public Education, federal and state policymakers should implement education reforms designed to improve resource allocation and boost student performance,” wrote Lips and Watkins.

School Spending and Student Achievement in Michigan: What’s the Relationship?
https://www.mackinac.org/22355
In this report, Ben DeGrow and Edward C. Hoang of the Mackinac Center for Public Policy examine the relationship between school spending and student achievement in Michigan. “The results suggest that there is only a very limited correlation between these two factors. Only one out of the 28 academic outputs analyzed showed a result that was positive and statistically significant, or different from zero,” the authors reported.

Everything You Know About State Education Rankings Is Wrong
https://reason.com/wp-content/uploads/2018/10/table.pdf
In this ranking, Reason Foundation uses on learning related metrics to create a more accurate ranking of state education. These rankings better reflect quality and efficiency, rather than per pupil spending, graduation rates, pre-K enrollment, and aggregated student data.

The 123s of School Choice
https://www.edchoice.org/wp-content/uploads/2019/04/123s-of-School-Choice.pdf
In this report, EdChoice experts review more than 140 empirical studies on school choice programs. They summarize these results making it easy for policy makers and others to quickly see what is working and what is not.

Ten State Solutions to Emerging Issues
https://www.heartland.org/publications-resources/publications/ten-state-solutions-to-emerging-issues-2018
This Heartland Institute booklet explores solutions to the top public policy issues facing the states in 2018 and beyond in the areas of budget and taxes, education, energy and environment, health care, and constitutional reform. The solutions identified are proven reform ideas that have garnered significant support among the states and with legislators.

The Benefits of Cutting the Corporate Income Tax Rate
https://taxfoundation.org/benefits-cutting-corporate-income-tax-rate/
Erica York of the Tax Foundation argues economic evidence suggests that corporate income taxes are the most harmful type of tax and that workers bear a portion of the burden. Reducing the corporate income tax will benefit workers as new investments boost productivity and lead to wage growth.

Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms
https://www.nber.org/papers/w20289
This paper estimates the incidence of state corporate taxes on the welfare of workers, landowners, and firm owners. The study finds that firm owners bear roughly 40 percent of the incidence, while workers and landowners bear 30-35 percent and 25-30 percent, respectively.

Taxing the Rich Will Bankrupt Your State
http://heartland.org/policy-documents/research-commentary-taxing-rich-will-bankrupt-your-state
John Nothdurft explains the disadvantages and negative consequences of “millionaire” taxes and overtaxing the top income brackets.

Trend #1: “Millionaires’ Taxes”
http://taxfoundation.org/article/trend-1-millionaires-taxes
Joseph Henchman of the Tax Foundation examines the millionaire tax trend in this Fiscal Fact article. “A number of states have enacted high income taxes on those with large incomes. Although nicknamed ‘millionaires’ taxes,’ they have hit income at much lower levels. The trend seems to have petered out although California and Maryland may see further action,” Henchman writes.

Long-run Macroeconomic Impact of Increasing Tax Rates on High-Income Taxpayers in 2013
https://www.heartland.org/publications-resources/publications/long-run-macroeconomic-impact-of-increasing-tax-rates-on-high-income-taxpayers-in-2013?source=policybot
This report from Ernst & Young conducted on behalf of the Independent Community Bankers of America, the National Federation of Independent Business, the S Corporation Association, and the United States Chamber of Commerce examines the long-term impact of an increase in top income tax rates.

Seven Myths About Taxing the Rich
https://www.heartland.org/publications-resources/publications/seven-myths-about-taxing-the-rich
Curtis S. Dubay of The Heritage Foundation considers seven commonly cited myths about policies to tax the rich. Dubay argues raising taxes on the rich would increase the progressivity of an already highly progressive tax code. It also would damage economic growth by stifling job creation, further slowing already stagnant wage growth. Although some see raising taxes on the rich as a silver bullet for fiscal woes, it actually badly damages the economy, he writes.

Education Savings Accounts: The Future of School Choice Has Arrived
https://www.heartland.org/publications-resources/publications/education-savings-accounts-the-future-of-school-choice-has-arrived
In this Heartland Policy Brief, Policy Analyst Tim Benson discusses how universal ESA programs offer the most comprehensive range of educational choices to parents; describes the six ESA programs currently in operation; and reviews possible state-level constitutional challenges to ESA programs.
 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR
Author
Lennie Jarratt is the project manager for the Center for Transforming Education at The Heartland Institute.
ljarratt@heartland.org @LennieJarratt