Tax Analysts Blog

A Penny for Your Teachers

Posted on Jun 15, 2016

The Oklahoma Supreme Court recently approved a ballot measure (779) that will, if approved by voters, increase the state sales tax by 1 percent. The new revenue would be earmarked to fund $5,000 pay raises for Oklahoma teachers and provide support for the state's colleges and universities. The question before the court was whether the proponents had gathered the requisite number of signatures; the court said yes. But the tax issue is much more interesting.

Here's what we know. Oklahoma pays its teachers poorly. It ranks 48th among the states, according to the National Education Association. I'm not sure if there's a set of public employees more undervalued than teachers, so let's stipulate that they need a raise in Oklahoma.

Is the sales tax the way to fund higher teacher pay? We know the sales tax is regressive. Poor people in Oklahoma will be paying relatively more for those higher teacher salaries than the rich. From a distributional perspective, one could argue that increasing the income tax would be fairer, but let's face it, there's little appetite among the public or politicians to raise personal income taxes. You could try to have some kind of millionaire's tax, but there just aren't enough millionaires to pay the teachers. Another problem with the increase is that it will create the highest combined state and local sales tax rate in the country, at 9.82 percent. That's awfully high. And the danger with a high sales tax is that people tend to shop less.

That said, a broad-based sales tax increase is better than using excise taxes, gambling, or other political gimmicks to fund important government services. What's strange about Oklahoma public finance is that the state relies so little on the property tax. The state collects about half the national average per capita in property taxes. I'm a property tax fan. It's a good way to pay for local government services. It's a good way to pay for education. I think that giving local governments and school districts the ability to rely more heavily on the property tax would be a fairer and more efficient way of raising money for schools. It's not a panacea. The property tax leads to fiscal inequities, but there's no reason for a state like Oklahoma to ignore a solid source of revenue. CQ Press recently released its rankings of state finances, and inexplicably, Oklahoma was number two in the country! I guess that would be true if your ranking is based on not really having a property tax.

In any case, Oklahomans will get to decide whether they want to pay their teachers more -- and if they are willing to pay more sales tax to get there.

 

(A version of this post first appeared in State Tax Notes.)

 

Read Comments (4)

Emsig BeobachterJun 15, 2016

David:

A one percentage point increase in the sales tax rate in OK represents an increase of more than 11 percent -- from 8.82 percent to 9.82 percent. I did not verify the rates, but I assume they're reasonably accurate.

I do not share your antipathy for using a sales tax increase to finance the raise for Oklahoma's teachers. If that $5,000 per year raise is to be statewide then teachers in the least wealthy districts would probably enjoy a greater percentage increase in pay than would teachers in wealthier school districts. I am assuming that teachers compensation would vary directly with school district wealth. Of course the correlation would not be unity but I'm sure it would be statistically significant.

Raising the sales tax rate, which is already relatively high, might induce Oklahomans to avoid the tax increase by shopping online and finding retailers who do not collect use taxes in OK; or, they could drive to neighboring states to shop; or, as you say reduce spending.

P.S. In an elementary statistics class, the instructor correlated alcohol consumption and teachers salaries over time. Sure enough, one could argue that increases in pay for teachers resulted in increasing consumption of alcoholic beverages.

Tim LarasonJun 16, 2016

Yes, some of us in Oklahoma know this is probably the worst way to finance the needed teacher salary increase. Property taxes were not on the table. Business tax credits were hardly touched.. The governor and republican legislators refused to consider reversing recent income tax cuts. Many of the legislators are now facing opponents allied with teachers. We will see what happens in November.

Edmund DantesJun 20, 2016

"What's strange about Oklahoma public finance is that the state relies so little on the property tax. "

And that's exactly why teachers' pay is relatively lower than in other states. Which is exactly the result that you always advocate--local control of property taxes keeps spending down to levels each locality can afford. The sales tax measure should be defeated.

I do not stipulate that teacher's are underpaid. Simply because OK is 48th tells us less than nothing. How does teacher pay compare to the average OK citizen's income? My guess is its already about 125% of the median, plus they have health benefits far better than most taxpayers get. And summers off. Is OK having a hard time hiring new teachers? If not, starting salaries are not too low.

In my CT school district, the average cost of all employees, salaries and benefits, is $87,000 each. I find that remarkable. We get dozens, if not hundreds, of applicants for every opening.

AMTbuffJun 20, 2016

Market forces are informative. Any job which draws more than 10 applicants for an open position is objectively overpaid. Here in California, that's firefighters, lifeguards, public utilities (including transit), and some others I can't think of right now. Every non-competitive agency becomes a taxpayer-fleecing enterprise.

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