Research & Commentary: More Education Funding Does Not Improve Education Outcomes

Published March 5, 2020

In an effort to increase education funding in Rhode Island, two state lawmakers have introduced a tax reform plan that would raise taxes on residents earning more than $500,000 annually. The new tax bracket would add 1 percentage point to the 5.99 percent top rate for income earned higher than $500,000. An incremental amount of the new revenue would be directed to a designated account for funding K-12 education

Although some supporters of so-called millionaire taxes argue large-scale relocation by wealthy taxpayers is not likely to occur, the negative effect of Maryland’s millionaire tax provides a stark example of what could take place in Rhode Island. In 2009, Maryland enacted a millionaire tax projected to raise an additional $106 million per year. Instead of providing the anticipated revenue increase, the number of Marylanders reporting incomes of $1 million or more fell by one-third just one year after the tax became law.

Although income taxes are often sold to the people as a tax on the rich, they almost never remain as such. Income taxes nearly always expand over time to cover increasingly more taxpayers, due to government’s insatiable need for tax revenue, which it uses to fuel out-of-control spending.

Although proponents of the new tax claim it is necessary to improve the quality of Rhode Island’s public education system, evidence demonstrates more education funding often does not improve educational outcomes. For example, real spending per student nationwide has increased by 23.5 percent over the past decade, however, education outcomes have not improved. Scores on the National Assessment of Educational Progress (NAEP) test have remained stagnant despite record education spending. Indeed, a Cato report on school spending found only a 0.075 “correlation between the spending and academic performance changes of the past 40 years, for all 50 states.” This correlation is so slight it is described as “essentially no link between state education spending.”

Rhode Island already spends more per pupil than many states. According to Education Week, Rhode Island spends $15,320 per pupil, $2,564 more than the national average. Despite a higher level of spending, Rhode Island scored lower on the NAEP than many of its neighbors and ranked in the middle of the pack nationally according to the Providence Journal.

Instead of throwing more money at the problem, Rhode Island residents should demand increased educational opportunities for children and families. Overwhelming evidence shows that education freedom improves student safety, produces better education outcomes, increases parental satisfaction, and increases per-pupil funding for the students choosing to stay in their traditional public school.

This can be accomplished through a variety of measures. One solution is education savings accounts (ESA), which are private accounts managed by parents that are used on educational expenses for their child. Parents can use the funds to pay for online classes, private school tuition, personal tutors, books and other curricular materials, or even used to save for higher education. ESAs would allow all Rhode Island families to meet their child’s educational needs—and to do so at a lower cost.

Rather than increase taxes on higher earners and inhibit economic growth, Rhode Island’s elected officials should focus on making the state a more attractive place for businesses and workers, a goal that would best be accomplished by restraining spending, lowering tax rates, and reducing unnecessary regulations.

The documents cited below examine millionaire taxes, their history of failing to shore up budgets and increase revenue, and the fallacy of trying improving education outcomes with increased funding alone.

Everything You Know About State Education Rankings Is Wrong
In this ranking, Reason Foundation uses on learning related metrics to create a more accurate ranking of state education. These rankings better reflect quality and efficiency, rather than per pupil spending, graduation rates, pre-K enrollment, and aggregated student data.

The 123s of School Choice
In this report, EdChoice experts review more than 140 empirical studies on school choice programs. They summarize these results making it easy for policy makers and others to quickly see what is working and what is not.

Does Spending More on Education Improve Academic Achievement?
Dan Lips and Shanea Watkins of The Heritage Foundation discuss the rising cost of education and whether increasing education spending has improved education outcomes. “Taxpayers have invested considerable resources in the nation’s public schools. However, ever-increasing funding of Education has not led to similarly improved student performance. Instead of simply increasing funding for public Education, federal and state policymakers should implement Education reforms designed to improve resource allocation and boost student performance,” wrote Lips and Watkins.

School Spending and Student Achievement in Michigan: What’s the Relationship?
In this report, Ben DeGrow and Edward C. Hoang of the Mackinac Center for Public Policy examine the relationship between school spending and student achievement in Michigan. “The results suggest that there is only a very limited correlation between these two factors. Only one out of the 28 academic outputs analyzed showed a result that was positive and statistically significant, or different from zero,” the authors reported.

Ten State Solutions to Emerging Issues
This Heartland Institute booklet explores solutions to the top public policy issues facing the states in 2018 and beyond in the areas of budget and taxes, education, energy and environment, health care, and constitutional reform. The solutions identified are proven reform ideas that have garnered significant support among the states and with legislators.

Trend #1: “Millionaires’ Taxes”
Joseph Henchman of the Tax Foundation examines the millionaire tax trend in this Fiscal Fact article. “A number of states have enacted high income taxes on those with large incomes. Although nicknamed ‘millionaires’ taxes,’ they have hit income at much lower levels. The trend seems to have petered out although California and Maryland may see further action,” Henchman writes.

Should We Raise Taxes on the Rich?
Peter Ferrara, senior fellow for entitlement and budget policy at The Heartland Institute, writes in the American Spectator about “taxing the rich” and explains why such policies make no fiscal sense.

Long-run Macroeconomic Impact of Increasing Tax Rates on High-Income Taxpayers in 2013
This report from Ernst & Young conducted on behalf of the Independent Community Bankers of America, the National Federation of Independent Business, the S Corporation Association, and the United States Chamber of Commerce examines the long-term impact of an increase in top income tax rates.

Seven Myths About Taxing the Rich
Curtis S. Dubay of The Heritage Foundation considers seven commonly cited myths about policies to tax the rich. Dubay argues raising taxes on the rich would increase the progressivity of an already highly progressive tax code. It also would damage economic growth by stifling job creation, further slowing already stagnant wage growth. Although some see raising taxes on the rich as a silver bullet for fiscal woes, it actually badly damages the economy, he writes.

Education Savings Accounts: The Future of School Choice Has Arrived
In this Heartland Policy Brief, Policy Analyst Tim Benson discusses how universal ESA programs offer the most comprehensive range of educational choices to parents; describes the six ESA programs currently in operation; and reviews possible state-level constitutional challenges to ESA programs.


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