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Editorial: Invest in education, not tax cuts

BY DI EDITORIAL BOARD | AUGUST 27, 2013 5:00 AM

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A report released last week by the Economic Analysis and Research Network found that states with highly educated workforces tend to be more economically prosperous than states with less-educated workers. Researchers argued that high educational attainment contributes to a state’s economic well-being.

This report underlines the economic benefits of increasing state funding to both K-12 school districts and public universities.

But some states may have their priorities out of whack. Peter Fisher, a coauthor of the report and the research director of the Iowa Policy Project in Iowa City, said that instead of investing in education, many states are pouring money into tax cuts for businesses, trying to lure employers from other states in a “race to the bottom.”

Data analyses in the report show a strong correlation between educational attainment and median wages, whereas high wages and low taxes were not significantly related.

Iowa is both cutting property taxes while increasing funding for education.

Over the past few months, Gov. Terry Branstad and the Iowa Legislature approved numerous legislative items including the largest tax cut in Iowa’s history, an education-reform package that increases state funding to K-12 school districts, and a tuition freeze for Iowa’s public universities.

While we applaud the growth in state money invested in educating Iowans, massive commercial property-tax cuts are fiscally unsustainable and, according to the report, a waste of resources.

Although cutting property taxes intuitively seems as if it would attract businesses, Fisher noted that just 2 percent of an average company’s operating costs come from state and local taxes.

“Overall, state and local taxes just don’t have much leverage,” he said. “When you talk about cutting the corporate income tax in half, it just isn’t enough difference to tip the balance in the favor of Iowa in the vast majority of cases.”

The revenue that provided Iowa’s large budget surplus will dry up once the Legislature drafts the 2015 budget because of property-tax legislation that will only grow more costly, Fisher said.

A depleted surplus could mean more spending cuts, potentially endangering both the tuition freeze and the education reform bill.

Cutting funds to either education initiative would be unacceptable.

Iowa’s public schools and universities need adequate funding to provide students the resources they need to compete in a globalized economy. Unfortunately, public funding for higher education has been shrinking dramatically over the past decade.

The Iowa Fiscal Partnership reported in March 2012 that tuition has replaced state funding as the main revenue stream for the state Board of Regents’ universities. In 2000, 67 percent of public-university funds came from the state government, and tuition paid for approximately 26 percent.

Now, tuition makes up nearly 60 percent, and state funding has fallen to around 35 percent.

The consequences have left students with enormous debts that both discourage potential students from attending college and burden an entire generation of college graduates.

A strong industrial sector and labor unions once permitted high wages for jobs that required comparatively little education, but both have declined in recent years, and thus, education has become more important in securing high-wage jobs.

Economists from the Federal Reserve Bank of Cleveland found in a study that from 1939 to 2004, the primary factors driving growth in per capita income were high-school and college graduation rates.

Even if a given state’s economy doesn’t have a large demand for a college-educated workforce, the supply of highly knowledgeable workforce, Fisher’s report stated, will attract employers who need employees with a degree.

The economic facts make it abundantly clear: the best way forward for Iowa is to invest in education instead of throwing money at property tax cuts that barely affect corporations’ bottom lines.


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