One way to get more money for Cape schools.

One definition of crazy is doing the same thing over and over again and expecting different results. State Rep Eric Turkington (D-Falmouth) believes that Cape Codders may be acting crazily when it comes to our continued attempts to get the state to adjust its school funding formula.

Turkington is quoted in the CC Times (4/29) as saying that “Since 1993, we’ve been arguing this fight…I’m starting to think that we’ve got to find another way to direct local aid to our towns than trying to modify this education funding formula. It was designed to be stacked against our towns. It has operated in that fashion for 13 years. It is going to continue that way.”

We agree with Eric. We have heard no argument that is likely to convince a legislator in any district that he should reduce funding in any town he represents so that Sandwich can have additional funding.

We’ve been saying for some time that the only way Cape Cod is going to get more school funding from the state is if everyone gets more school funding. Fortunately, we may be at a moment in state history where a little out-of-the-box thinking could make this happen.

Right now, many people think the state should continue the staged cuts of the income tax to 5%. Many others think that would be fiscally irresponsible. Suppose we do it this way: Instead of reducing the 5.3% income tax rate to 5%, we would take that extra revenue, which could be about $600 million, and send it directly back to the cities and towns, based on the residence of the taxpayer who paid it.

Every taxpayer has an official residence, and every address is in a city or town. The money that comes from a town would go directly back to that town. The state would process the money, and simply return it to the town.

This would produce significant additional revenue for the cities and towns.

We believe that the voters should decide how this revenue would be used. To allow those who paid the taxes to have their say, its disbursement would have to be subject to a vote of the residents of every city and town.

Those who want a tax cut would vote to have their property taxes reduced proportionately. That would reduce taxes in that town or city by the same amount as they would have been reduced by a reduction in the income tax rate.

Other towns might vote to have the money used to increase the school budget, or for some other municipal purpose. In any case, there is no increase in current taxes, just a shift in its allocations.

It’s our money, so let the people speak!

Cape Cod will not get free cash from state. Here is realistic plan.

Recently the state legislature’s Joint Committee on Education held an open hearing in Barnstable to discuss the formula used by the state to distribute educational funds.

Cape Cod speakers, led by a large contingent from Sandwich, attacked the formula as unfair. They argued that because the formula allocates funds based on property values, and does not take median income into account, the Cape, with relatively high property values and relatively low median income, gets the short end of the stick. (We have not heard anyone who makes this argument mention that unlike most towns, the Cape has many second homes that pay property taxes and do not put any kids into the local schools.)

Second homes aside, we agree that the formula is unfair and The Cape deserves more money from the state. The problem is that no one is willing to talk about where the state is going to get the money.

Those who push for formula change seem to think that the money will come from the existing pool, thus reducing what other cities and towns get from the state. For example, Rep Perry from Sandwich said on WZAI recently that the legislature could identify those cities and towns getting more money than they deserve and transfer that money to the Cape.

We think it’s time for everyone to realize that this is not going to happen. There is literally no chance that any significant number of legislators are going to vote to cut funds to other districts in favor of Cape Cod. We repeat: No chance.

The formula will change in the Cape’s favor only if the state increases the pool of money to be sent to all cities and towns, promising more to every district in the state. As part of this the legislature might be willing to change the formula so the Cape gets proportionately more than other areas.

But where is the money going to come from? Some of the same legislators who want more money for their districts are also pushing to have the state cut the income tax rate from 5.3% to 5%, eliminating most of the surplus revenues the state might use to increase school distribution.

You can’t have it both ways. If we want the state to distribute more money, we have to find a way for the state to get that money. We have argued for a long time that it is a good idea to shift taxation away from the regressive property tax to the progressive income tax. That is especially good for people living on fixed incomes.

So, our proposal is not to decrease the income tax, but to put it back to its old rate of 5.9%. All of the extra money collected would be sent directly to cities and towns for use in education. Part of it would be distributed on a per pupil basis, and some by a revised formula, but any town getting this money would have to agree to cut its property tax by at least one half of the amount they get, and to set a new lower base number for proposition 2-1/2.

It is magical thinking to believe that Cape can have more money at the expense of other towns, or that the state can distribute more revenue while lowering taxes. We have to look for realistic solutions.

Paul Schrader and Jasck Edmonston

Why Local Aid Should Not Be Cut

What they show is that from 1989 to 2002, the Massachusetts tax system has become increasingly regressive according to The Institute on Taxation and Economic Policy. That is, taxes have been taking higher percentages of income from people in the middle and lower brackets, while people in the top brackets have been paying a lower percentage of their income in taxes.

Here are some figures, taking all taxes into account (including income, sales and real estate, as well as the federal credit for state taxes):

— The total state and local tax impact on the middle 20% of taxpayers (those earning between $34,000 and $56,000) is roughly 8.6% of income.

— People in the bottom 20% (those with incomes under $19,000) pay about 9.3% of their income in taxes.

— People earning between $182,000 and $413,000 pay only 6.2% of their income in taxes.

— The top 1% (people earning more than $413,000 a year, with an average income of $1.4 million), pay the least of all groups in percentage terms, 4.6%.

This is called “regressive” taxation and it has been criticized by economists since Adam Smith. In his famous “Wealth of Nations” (published in 1776, the year of the Declaration of Independence), Smith wrote:

“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state…. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation.”

Smith pointed out that some taxes were more equitable than others. Today, for example, the state income tax is the only one of our state taxes that is not regressive. People in the top 1% pay an average of 5.1% of their income in income taxes, while people in the middle 20% pay only 3.5% on average.

Sales and property taxes are, however, quite regressive. People in the lowest 20% bracket pay 5.4% of their income in sales taxes, for example, while those earning between $90,000 and $182,000 a year pay only 1.8%.

Real Estate Tax Is A Poor Way To Fund Public Education

In Massachusetts we use the real estate tax as the primary method of funding our public schools. Only New Hampshire relies on it more. There are better ways to pay for the education of our children.

There are many problems with the real estate tax. For one thing, it pits people without children in school against families with students. Including building costs, most towns use well over half of their real estate tax dollars on their schools, and frequently the only way to keep taxes down is to starve the schools.

The real estate tax puts retired people on fixed incomes in a very difficult situation. Even if they want to have good schools they find it more difficult to meet other needs as their taxes rise.

On the other hand people with kids in school are still at work, getting raises; and even high taxes are a lot less expensive than private education.

The real estate tax is also somewhat regressive. According to Citizens for Tax Justice (CTJ), non-elderly married couples in Massachusetts with a family income up to $58,000 (in the middle income bracket), pay about 2.8% of their income in property taxes.

Lower income working families pay more. CTJ says that Massachusetts couples with only $19,000 (or less) in family income pay 3% of their income in real estate.

On the other hand, when you get into the highest brackets, real estate taxes drop as a percentage of income. Families with incomes over $182,000 pay only 2,4%; and the top 1% (those with incomes in excess of $413,000 a year) pay only 1.1%.

The real estate tax is also impossible to administer fairly. Accurate assessments cannot be done no matter how hard one tries. To show what we mean, we checked the sales of 23 home sales as reported in one issue of a local paper against their “market value” assessments as recorded in the tax office. It’s not a pretty picture.

Two properties were assessed above their sales price, one at 25% more than it sold for. On the other hand, three houses were assessed at less than half of their sales price, one for only 28% of the amount it sold for. There were six houses whose assessments were between 50% and 70% of their sales price.

Only half of the houses had assessments that ranged from 75% of 96% of their sales price, which is generally considered the “acceptable” range.

Imagine. You could be paying taxes on a 100% assessment while your neighbor’s taxes reflect only a 30% assessment. This is not fair.

There are better ways to fund our schools. One would be to make more use of the income tax. The income tax, unlike the real estate tax, is progressive. In Massachusetts, non-elderly couples in the lower income ranges pay less than 3% of their income in taxes, while those in the highest brackets pay between 4.3 and 5.1%.

People on fixed income also have fixed income taxes. Unlike real estate taxes, income taxes do not take ever-increasing amounts of the money they need for the necessities of life.

The simplest way to do this would be for the state to pass an increase in the income tax which would be passed directly to the city or town in which the taxpayer lived. In return the cities and towns would reduce their residential tax rates (not the commercial property rates), and landlords would be required to reduce rents to reflect their lower taxes.

This tax would probably not cover all school expenses. But it would provide more money for our schools in a fairer manner. The pressure of ever increasing real estate taxes to fund new students should be significantly lessened.

Jack Edmonston and Paul Schrader