The Complicated Math of Education Spending

What’s the wrong way to invest more in education? What’s the right way?

This November, Hawaii residents will get a chance to vote on the ballot question, “Shall the legislature be authorized to establish, as provided by law, a surcharge on investment real property to be used to support public education?” On the surface this proposal seems like it has a lot going for it. Hawaii residents pay less in property taxes than most other Americans, in most education rankings it falls somewhere in the middle, and in terms of teacher salaries it’s also fairly average when compared with most U.S. states. So a tax on property, specifically only on investment property rather than people’s homes, has some immediate appeal. It looks like a way to raise funds for education without increasing the tax burden for most Hawaii residents.

Of course it’s not at all that simple. The first problem with this proposal is that before it raises any money it’s probably going to cost some money. Currently in Hawaii only the counties collect property taxes. Creating a new state property tax will necessitate creating the state level administration to calculate, collect, and enforce that tax. All of that is likely going to cost tax dollars that will have to come from somewhere else. In fact, this has already cost Hawaii some money, the four county governments recently filed suit against the state to try and block the measure from appearing on the ballot, but the motion was blocked by a judge last week.

The nest issue here is that no one knows exactly what the new tax would actually be on. Hawaii has no legal definition of “investment property”; it’s been pointed out by those opposed to the amendment that most people think of their homes as an investment. Even assuming a logical definition of “investment property, something along the lines of “property other than the owner’s primary residence” a new tax on this type of property is not going to be borne just by the super rich.

Some investment properties in Hawaii are second homes of those who live elsewhere, but a lot of investment property in Hawaii is business lots, apartments, and even agricultural land that’s rented. When taxes on this type of property go up, rents are going to increase. This is where this proposal could really backfire. While it was intended to disproportionately impact rich Hawaii property owners, in reality it’s also going to negatively impact those in Hawaii who rent, while having much less of an effect on anyone who owns their own home.

The Hawaii State Teachers Association, who are advocating in favor of the amendment, estimates that it would raise $500 million annually. One of the main goals of the new tax is to increase the salary of Hawaii teachers who currently make on average about $56,000 a year. As of September the median home price on Oahu, where the vast majority of Hawaii residents live, is $810,000. Given those numbers it seems safe to assume that at least some Hawaii teachers are among the renters that an investment property tax would hit hardest. And it’s unclear how the numbers would work in terms of the amount of tax levied in order to raise the $500 million. According to the Affordable Hawaii Coalition, a group opposed to the tax, in order to raise the $500 million the tax rate on investment property would have to be 50%. That could drive rents up a lot on residential property, and on business property which means that prices could go up too.

None of this is to say that Hawaii shouldn’t increase teacher salaries, it should, or that states shouldn’t look for new ways to try and invest more in education, they should. The point is that there aren’t loopholes or easy answers for things like education spending. A state with great public schools isn’t great if the taxes and cost of living drive away all but the richest families. In Hawaii, getting more money to improve the quality of education may mean some kind of property tax increase, but it should also mean being thoughtful and realistic about who is going to actually pay that tax.

Comments
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wonderwall15
wonderwall15

Never a fan of new taxes but what else could have been done? crowdfunding? Will that be viable? I mean it's not obtrusive, and just voluntary but probably couldn't hit deadlines sooner

Jon Saltzman
Jon Saltzman

Editor

Nice piece Alexis. This is often the problem with well-meant but not well thought out government. Teacher salaries are far too low and there may be other areas of fat in school districts' budgets to cut to support teachers.

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