Tax Hikes, Brighter Business Climate a Boon to Schools in Some States

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Although some states, like Oklahoma, are struggling with multimillion deficits, others, after several years of financial hardship, are beginning to see some relief. And some are even anticipating budget surpluses.

The improving fiscal situation, according to budget analysts, is largely due to the combination of tax increases adopted by legislatures and voters in the last year and greater-than-expected economic growth in recent months.

The success of some of those tax initiatives, according to some state officials, can be attributed to growing public concern about education.

A survey of states by the National Conference of State Legislatures found that 26 states in a recent 12-month period had raised sales or personal-income taxes, or both; 15 states had increased their business-income taxes; 18 had increased their cigarette taxes; 14 had upped their levies on alcoholic beverages; and 19 had raised their taxes on motor fuel.

Officials in some states said last week that there was less difficulty in passing such tax increases when education programs clearly were the beneficiaries.

"Nobody likes to have their taxes increased," said David Fields, a spokesman for Gov. James R. Thompson of Illinois, but when the state instituted a temporary 1-percent increase in personal income taxes last spring, "we didn't hear much complaining about it," Mr. Fields said.

Education played a major role in convincing state legislators and their constituents that a tax increase was needed, Mr. Fields said. Because Illinois has not had a tax increase in 14 years, the legislature has cut spending in order to balance the budget.

"After a certain point, you start cutting into the muscle of major programs like education and I think most people realized that [additional] cuts would have been devastating," he said.

In addition to the temporary personal-income-tax increase, the Illinois legislature also adopted a 1-percent permanent increase in the state sales tax this year.

Michigan increased spending for elementary and secondary education by some 30 percent for this year--thanks in large part to the income-tax increase pushed through the legislature by its Governor.

"Education was an important consideration," said Thomas Scott, deputy press secretary to Gov. James J. Blanchard. "We stopped the trend of disinvestment in education. Education is a fundamental building block of the state's economy. That's why the Governor was able to pull it off."

In Arkansas, the linkage between tax increases and education is even stronger. Last session, the legislature passed a 1-percent increase in the sales tax to be used solely for school improvement.

"The Governor would never have requested the increase if we had not had this need in education," said Kay Gaines, assistant press secretary for Gov. Bill Clinton.

In Florida, tax increases tied to education were also approved by the legislature, according to a spokesman for Gov. Robert Graham. "Without the mission of improving the schools, it would be awfully hard to see how [an increase] would pass," Patrick Riordan said. He also noted that recent national reports on educational reform were very helpful in getting the legislation through.

Governors and other state officials at a meeting late last month of the National Task Force on Education for Economic Growth in Wilmington, Del., agreed that education reform has helped to convince the public to support higher taxes.

Gov. Mark White of Texas said he has supported higher taxes since taking office this year because of the need to improve public education in the state. Govs. Charles S. Robb of Virginia, Richard W. Riley of South Carolina, James B. Hunt Jr. of North Carolina, and Pierre S. du Pont 4th of Delaware all agreed that tax increases could be sold on the basis of the need to upgrade education.

Resistance Noted

Although education has been useful in "selling" tax increases to legislators and voters, there are pockets of resistance, officials pointed out.

The adoption of tax initiatives in Michigan has ended the careers of two legislators and has threatened to end the careers of two more.

In unprecedented moves last month, voters recalled State Sens. Philip O. Mastin Jr. and David Serotkin, both Democrats, for voting in favor of the temporary 38-percent income tax increases.

Citizens groups already have presented petitions to oust two more legislators to the election boards of two other counties, Mr. Scott said, and the groups have said they will attempt to unseat other legislators who supported the tax increase.

Missouri's Gov. Christopher S. Bond is waiting to see how the legislature will act on his proposal for a 10-percent increase in state income taxes, much of it needed to finance desegregation of St. Louis schools. (See Education Week, Nov. 2, 1983.)

The state legislature is debating various proposals--the Governor's $157-million package, a House tax plan that would raise $335 million annually, and a Senate bill that is a compromise between the Governor's package and the House plan.

Unless a tax increase is passed this week, Governor Bond has said $63 million must be cut from the state's education, health, and agricultural programs. Other states are experiencing opposition to increases from a variety of citizens' groups. In Ohio, groups opposing recent tax increases were very active in campaigning for anti-tax measures that were defeated in state elections last month.

Florida's Governor Graham recently appointed a special commission to study the impact of the state's new unitary tax system that allows the state to apply its corporate tax to the foreign and out-of-state profits of businesses. Businessmen are bitterly opposed to the tax, a spokesman for the Governor said, and it is also a source of dispute between Governor Graham and Lt. Gov. Wayne Mixson. Mr. Mixson publicly called for repeal of the tax this fall while the Governor was out of the country.

Additional Proposals

In the next two years, officials at the National Conference of State Legislatures are expecting even more proposals for increased taxes based on the need to improve educational programs.

Although pressure for educational reform paved the way for tax increases in several states, Steven D. Gold, a finance expert at the ncsl, attributes most of the tax increases in 1983 to economic factors.

It was the state deficits caused by the economic recession, he said, that finally forced many states to increase taxes as a means of offsetting their losses. (A report from the National Governor's Association released last winter revealed that 37 of 41 states surveyed had adopted austerity measures in 1982. Fifteen states reported laying off workers as well as passing temporary revenue-raising measures.)

Another factor, Mr. Gold said, is the tax-revolt movement. "States went overboard in cutting," and then tax increases were necessary to bring services back up to adequate levels.

Because many states already were on the way to establishing biennial budgets last April when the National Commission on Excellence in Education released its report, Mr. Gold pointed out that most legislatures barely got around to discussing some of the major issues it raised before their 1983 sessions ended.

"It's one thing to talk," he said, "it's another thing to have action. In terms of the big bucks, most states did not come through."

Increased emphasis on educational reform will be even more noticeable during the next two years, Mr. Gold predicts. "Numerous" states will increase taxes to fund 1984-85 education budgets, he said, basing his prediction on the results of a recent ncsl survey of state legislators on education committees. Forty-six legislators representing 36 states responded to the survey.

"Taxes and elementary and secondary education ranked one and two as the leading state budget issues during 1983," the report states."Attention to school finance represents a dramatic shift from just a year ago, when less than one-fourth as many states mentioned funding local government--including the schools--as a top budget issue."

Charlie Euchner contributed to this report.

Vol. 03, Issue 14

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