A value-added tax may help bridge the gaps in funding public schools
Walking the Beat
First thing's first: Kudos to the voters for passing Anaconda's school safety levies on Tuesday. That was a more difficult decision to make compared to last year's levies than it needed to be due to the increased property tax burden that kicked in last fall courtesy of the antiquated method the state has set for tax assessments that left Montanans exposed to the volatility of the market. I also have to imagine that the permanent nature of the levies also played a role, though there's always the hope that other funding sources will increase in the years ahead and make it so that the schools won't need to assess those levies in order to pay for school safety measures, programs and positions that, sadly in this day and age, have become as essential as classroom instruction.
And while I'm offering kudos, here's a huge shoutout to Megan Casey and her students who did a marvelous job handling three candidate forums in as many weeks, two of them in the span of three days this week. I'm particularly grateful for the students who chose to miss out on all or part of their sports awards banquet (which regrettably I was unaware of that scheduling conflict) in order to be part of this important step in the democratic process: Informing the voters. The sight of so many students in professional attire standing up in front of an audience to appeal for funding – funding they won't even see since they graduate at the end of this month – was inspiring.
But, as I wrote two weeks ago, there has to be a better way. There needs to be a better way of equalizing the great equalizer that is public education than going back to the property tax well over and over again. Thankfully there is, though it's something that would have to be implemented at the national level – and adding yet another level of difficulty, it's something our country has never done before: Implement a value-added tax.
If you've never heard of a value-added tax or VAT as it's commonly known, that's completely understandable. Even though we're only one of a handful of nations that don't have a VAT, and are the only developed country on Earth that doesn't have one, most Americans don't travel so it's probably not something most folks have encountered, and even if you have traveled to places like the EU where you ended up paying VAT you probably got it refunded to you on anything you bought that's exempt from collection from overseas buyers (as typically VAT isn't assessed on exports).
So, what is a VAT? Simply put, it's a tax on the value that's added between the initial purchase of raw materials and their sale as finished goods, and is collected at the point of sale. Which, uh oh, that sounds like a sales tax and nobody wants that, and yes it is similar in that it's a percentage that's assessed on an item that's sold, but what's actually taxed is the margin that exists between the cost of producing the goods and the sales of the goods – or, in the case of the raw materials themselves, the value of those materials when they're sold, typically to manufacturers. And while the person or business or whomever buys the goods is who pays the tax, if you then turn around and add value to it in some way by reselling it, you can end up recouping your cost that was passed along to you by the producer on the VAT you paid for it. That aspect of a VAT actually incentivizes economic activity and better business practices in that you don't want to have a bunch of unsold inventory sitting around since you won't get back your added wholesale costs from the VAT you paid until you sell it.
But, apart from being a tax of course, what does all of this have to do with public schools? Well, let's start by looking at how much this country spends on primary and secondary education. It's about $900 billion a year. Our gross domestic product (GDP) is about $25 trillion. So public schools cost about 3.6% of our GDP (it's actually more than that when you factor in federal borrowing that's involved in deficit spending, but that's a topic for another day), and as I showed two weeks ago, there are your haves in places like New York and DC where per-child spending is more than double, even close to triple, what's spent in the have-not places like ours. But what if we closed that gap with a VAT?
Let's say we start it with something minimal, 2% VAT on every economic exchange except food staples, which I can't imagine come anywhere near $500 billion but let's just use a number and say we're projecting VAT receipts of 2% off $20 trillion of GDP. Two percent of even $20 trillion is $400 billion. That's close to half of that $900 billion cost of public schools, just by adding two cents on every dollar of value the economy creates.
Okay, but how does that help bridge the gap? Well, if I can be forgiven for looking abroad for an example that might be worth following, Australia has a VAT system where the tax revenues from their VAT are reapportioned to the state and territorial governments in the form of grant funding that allows the poorer jurisdictions to provide the same level of public services as the wealthier ones. Now theirs is 10% and it's for more than just schools, but if we implemented even that 2% VAT and used it to elevate per-child spending in each below-average state much closer to the national average (and brought the national average up that much higher), it would go a long way toward making the great equalizer actually equal.
Just my two cents anyway. It'll ultimately be for our federal lawmakers to decide. But this should be something that should transcend politics. The future of the country depends on the next generation, just as it does with every generation before it. The students at our forum got that. Now if only Congress would get it, too.