Revenue Sharing Tax Revenue Sharing: A Solution Essay

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Revenue Sharing

Tax revenue sharing: A solution to the inequities in school funding?

Tax revenue sharing is one of the most popular yet controversial potential solutions to the problem of inequitable funding of school districts. In the debate over fairness in education, the fact that property taxes are usually the primary method of school funding frequently leaves poorer districts with substantially less revenue than their wealthier counterparts. Revenue sharing is based upon the idea in which "each community in a region designates some percentage of a new tax stream or new tax base to a regional pool, where it is divided among all the towns in the pool based on some formula that may involve population or other variables" (Region agenda, 2009, The Hartford Courant). Revenue sharing is designed to equalize revenue between local governments that have differing capabilities of raising revenue, and thus create better opportunities for residents.

This method of financing local services is particularly critical in the field of education, given that education can be a potentially great social equalizer, in terms of the ways it can open up opportunities for the chronically disenfranchised. However, when schools are underfunded, poverty becomes a vicious cycle. Poor districts have less revenue from property taxes and thus less money to fund schools and provide a high-quality education for students. Revenue sharing seems to provide local school districts with the best of both worlds -- retention of local control coupled with expanded opportunities to invest in other economic sectors. Even wealthier state residents can benefit from the wider community improvements generated from revenue sharing, such as a decreased need to attract large, polluting industries to generate tax revenue and the general improvements education can bring to the community.

Most local governments have a "limited revenue-raising ability" (Revenue sharing, 1998, Michigan in Brief). The most obvious way poorer districts can make up discrepancies in funding is through raising local sales taxes. But this source of funding can have a long-term negative impact upon an area for two, critical reasons.

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Firstly, poorer residents are penalized to a greater extent by sales taxes. It means that they must pay more money for the same goods and services, with the same amount of income. The poor devote a larger proportion of their salary to necessary items affected by sales taxes. The regressive nature of sales taxes means that it is counterproductive to the stated aim of increasing social equality.

Secondly, higher local sales taxes also stifle the growth of new enterprises, when new business is precisely what is needed to create job growth in depressed regions. "A classic case is Detroit, which levies a 3% income tax (as well as high property taxes), needed partly because it has a low property tax base (that is, the value of its taxable property is low relative to other cities, in part because high city taxes have driven residents and businesses from the city -- a vicious circle). A state revenue-sharing program allows local governments to levy lower taxes and mitigates competition among jurisdictions" (Revenue sharing, 1998, Michigan in Brief). Revenue sharing also allows poorer districts to allocate more resources for affordable housing and other programs to improve the plight of the poor and stimulate long-term, wider economic development, rather than channel their available revenues solely upon unavoidable costs for schools and other essential services.

Another argument in favor of revenue sharing is that it can have positive environmental consequences and improve the life of residents. "Towns desperate for property tax revenue to pay for schools and local government have often made poor land-use decisions -- given up farms and scenic vistas for strip malls and other developments they otherwise would have passed on" (Region agenda, 2009, The Hartford Courant). The drive to increase tax revenue to pay for schools can decrease the quality of life of children and adults, reducing the….....

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