Report Education

Tax Revenue Options

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November 28, 2004

This paper reviews the tax revenue options considered by the Citizens Budget Commission (CBC) in its analysis of how New York State can best pay for court-ordered sound basic education initiatives.

When faced with the need to raise revenues, policymakers have many choices. New taxes can be implemented, rates on existing taxes can be raised, and the base to which existing taxes are applied can be broadened to include previously exempt items.

Some of these options are better than others. Raising a tax that falls heavily on the poor has negative social impacts, for example. Taxing highly mobile resources, such as labor, can impede a region’s competitiveness. Some taxes could require onerous increases in rates to yield necessary revenue. Imposing taxes on a narrow base can lead to inequities among taxpayers whose income or activities are otherwise similar.

For these reasons, revenue options should be evaluated relative to basic principles of public finance. These principles pertain to a tax’s adequacy (does it raise enough revenue?), whether it treats similar taxpayers similarly, whether it is likely to distort economic decisions, and whether it is based on ability to pay.

In addition to these criteria, when a tax is a local or state tax its competitive impacts should be considered. Tax rates or practices that are out of line with competitor regions can make sustained economic growth more difficult to achieve.

The Commission considered broadening the base of two taxes, sales and corporate income; raising rates on two existing statewide taxes, personal income and sales; and instituting a new statewide property tax. 

This paper was prepared as support for the full report, "Can New York Get an A in School Finance Reform?" The research was made possible by generous support from the Andrew W. Mellon Foundation and by designated contributions from CBC Trustees.

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Tax Revenue Options