Building an Economy that Works for Everyone

To meet the education funding challenge, Washington needs a progressive income tax

The Washington State Supreme Court found  the State in “ongoing violation of its constitutional obligation to amply provide for public education.”  On August 13, 2015, the Court imposed a $100,000-a-day fine on the state until a satisfactory plan to meet this obligation has been adopted.

Washington underfunds education because our tax structure cannot produce enough revenue in a fair and sustainable way. To amply fund K-12 education, while providing the early learning, higher education, and basic health and safety services our people need, requires a modernization of our tax system to reduce sales taxes, restructure business taxes, and add a progressive income tax. But is this level of change politically possible?

Underfunding Education

Washington’s constitution declares it is “the paramount duty of the state to make ample provision for the education of all children residing within its borders.” In January 2012, the State Supreme Court ruled in the that the state was failing in this duty. The Legislature had already adopted goals aimed at increasing student achievement by 2018, including funding full-day kindergarten, reducing class size in grades K-3, beefing up standards in middle and high school, and providing all schools with necessary facilities, materials, and staff. The Court accepted those goals and timeline, but demanded the Legislature also produce a plan for the added funding those enhancements would require.

The Legislature allocated $1 billion towards public education improvements in the 2013-15 two-year budget, and another $1.3 billion in the 2015-17 budget, bringing K-12’s total to $18.2 billion out of the state’s $38.2 billion operating budget.Girl Studying Globe

In its August 2015 order, the Court commended the state for making progress. However, in the Court’s analysis, the state was still not on track to meet its class size goals, provide enough classrooms for those students, or pay salaries sufficient to attract and keep enough teachers of the highest quality. The Court also made clear that the state cannot continue relying on local school district levies to cover part of the costs of basic education. The state itself must pay for the level of education it says all children should receive.

Why can’t we find enough?

Washington is a relatively wealthy state with a thriving high tech sector. Yet we rank 46th among the states in spending on K-12 education relative to state personal income. K-12 is not the only area our state underfunds. Washington’s case managers for foster children have case loads 30% higher than national standards, leaving inadequate time to protect children from abuse and neglect. College tuition is now almost double what it was ten years ago. And services from early learning to home care for vulnerable seniors are without sufficient resources.

We lack funds for a world-class education system because our state’s tax system was designed for the economy of the 1930s. The enormous wealth now created in the new economy is taxed relatively lightly or not at all. The state’s General Fund operating budget ranged between 6.6% and 6.9% of state personal income through most of the 1980s and early 1990s, but has trended downward since. The Economic and Revenue Forecast Council projects that ratio continuing to fall to 4.6% in 2016 – the lowest rate on record. Since 2000, Washington’s state and local tax collection rate has fallen further and further below the national average.

Meanwhile, middle- and low-income people pay much larger shares of their income to support public education and other basic services than do millionaires. Other states are surpassing Washington – especially in education – and have fairer tax structures because they have an income tax.

During the 2015 budget discussions, House Democrats embraced a capital gains tax on wealthy individuals and modest increases in select business taxes, and Governor Inslee proposed a new carbon tax. Those sources would have provided more revenue for education, but would still have fallen short of fully funding McCleary.

State Treasurer Jim McIntire and Superintendent of Public Instruction Randy Dorn produced a plan to fully fund the public school enhancements which Dorn identified as necessary to meet McCleary– amounting to nearly $5 billion per academic year above current funding levels once fully implemented in 2020-21. Improvements include class-size reduction (but not to I-1351 levels), all-day kindergarten, enhanced science labs and teacher development, along with school operating costs. That level of new funding would result from a new tax structure that would be fairer and grow at the same pace as overall economic growth, unlike the current tax system. It would include an income tax, reduced sales tax, and revamped business taxes.

But Senate Republican leaders and some interest groups insisted that no new revenue sources were necessary. In the end, the Legislature adopted a budget that relied mostly on the economy’s continuing recovery from the Great Recession for “new” revenue. They set aside Initiative 1351, passed by voters in November 2014 to reduce class sizes in all grades, and produced no plan for coming up with the additional billions that would be needed by 2018 to make good on its education goals and replace local levy money now going to basic education with state dollars.

Where do we go from here?

An income tax is the most fair and reliable way to fund the education that our children deserve and that the State Supreme Court and Washington voters have demanded. The McIntire/Dorn proposal is a good starting point for discussion. But because it relies on a flat rather than progressive income tax and reduces sales taxes only by 1%, it still leaves struggling families paying more than their fair share – and the rich paying less. A progressive income tax, which the majority of states have, could provide both more revenue and allow for a larger reduction in the regressive sales tax.

Legislators of both parties are convinced the majority of state voters will not support a restructuring of our tax system to allow wealthy individuals and corporations to pay their fair share, because voters have rejected several earlier versions of an income tax. So the Legislature muddles through with the resources it has. It can’t produce a plan to fund McCleary, because without major tax reform, we simply won’t be able to fund the education our kids need as citizens of a democracy and participants in a global economy.

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