Leveling the Playing Field: The Case for an Education Value Added Tax

Abstract

Inequality of opportunity has become the main challenge for this generation of Americans. This article will focus on the lack of equality of opportunity as embodied in lack of access to a high-quality education. This has often been discussed in terms of access to college; however, it also manifests in lower levels of education. Moreover, lower education affects later education in two ways — it determines both college admissions and college readiness. To make this problem more concrete, we decided to focus on one case study: the funding of public education in the City of Detroit (one of the poorest cities in the US) and three of its wealthy suburbs — Birmingham, Bloomfield Hills and West Bloomfield. As is common in the US, funding for public education in Michigan once relied primarily on local property tax revenues. Because of concerns about the inequality of property tax bases by school district and the wish to restrict property taxes, Michigan voters approved Proposal A in 1994, which used a 2% increase in the state sales tax to fund equalization payments, and limited the ability of richer districts to spend more than poorer ones. However, as will be seen, even though Proposal A contributed to reducing the disparity in funding between rich and poor districts, there are still major discrepancies because the initial funding differential is built into the system, resulting in per student funding in rich districts that is almost double that of poorer districts. After describing this situation, the article turns to proposed remedies. One possible solution is to create a unified school district that includes both Detroit and the suburbs, and to equalize the per student funding base across the unified district, as was done in NYC and LA. We conclude, however, that given the history of animosity between Detroit and its suburbs, such a remedy is unlikely to be politically viable.A second option is to build on Proposal A and to use state support to completely equalize the per-student funding base. But even if such a revised Proposal A were not to founder on the same problems that we mentioned above, it is unlikely that the state of Michigan could raise adequate funds, because both the sales tax and the state income tax are vulnerable to “tax competition” problems that would preclude the state from raising the rates sufficiently.Thus, we conclude that the only solution is a federal solution. As President Nixon proposed in 1972, the United States should adopt an “Education Value Added Tax” (E-VAT) and use the revenues to equalize per student school funding across the country, as well as funding universal free public pre-K programs (such as the ones instituted by Mayor DeBlasio in NYC) and universal free public colleges for in-state residents (as used to be the case in California). This, we will argue, will do more to address the root causes of lack of equality of opportunity in America than any other potential use of revenues from a federal VAT.