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<text id=94TT0564>
<title>
Mar. 28, 1994: The Great Tax Switch
</title>
<history>
TIME--The Weekly Newsmagazine--1994
Mar. 28, 1994 Doomed:The Regal Tiger and Extinction
</history>
<article>
<source>Time Magazine</source>
<hdr>
EDUCATION, Page 31
The Great Tax Switch
</hdr>
<body>
<p>After years of painful maneuvering, Michigan may have found
a better way to finance public schools
</p>
<p>By David Van Biema--Reported by Andrea Sachs/New York and Joseph R. Szczesny/Detroit
</p>
<p> Back in the 1640s, when the current method of financing public
schools was developed, if a man had money, he put it into his
land. There were no IRAs or Social Security. With property the
best gauge of wealth, it made sense to pay for public schooling
out of property taxes. Nor did anyone wonder about the wisdom
of yoking schools to local real estate values; if nothing else,
taxpayers knew exactly how their money was being spent.
</p>
<p> After 350 years, however, methods have finally changed. Or so
believes John Engler, the Governor of Michigan. After years
of debate about school finance, his state's voters took what
may be a historic step. Under Engler's leadership, they replaced
property taxes almost completely as a means of funding their
3,286 public schools. Instead, by a 69% majority, they agreed
to raise the state sales tax from 4% to 6% and to increase the
tax on a pack of cigarettes from 25 cents to 75 cents. At the
same time, they adopted the Governor's proposal to raise the
minimum amount the state's schools must spend per pupil from
$3,277 to $4,200.
</p>
<p> On one level, the vote was simply the latest machination in
Michigan tax politics, which resembles nothing so much as a
billion-dollar game of chicken. Engler, a Republican, won the
governorship in 1990 by less than 1% after promising in the
campaign to cut property taxes 20%. His attempts to do so --
and to replace the revenues by increasing the sales tax -- were
rejected by the voters until last summer, when state Democrats,
in an apparent act of political grandstanding, proposed to do
away with education-funding property taxes without naming any
alternative revenue source. To the applause of some onlookers
and the horror of others, Engler took them up on it, promising
to find some way to make up the money. Until the vote last week
affirmed his method, the possibility loomed that public education
in Michigan, penniless, might screech to a halt -- along with
Engler's political career.
</p>
<p> And yet the Michiganders' decision also has tremendous national
resonance. It presented itself at a moment when property-tax
funding of education had become a multistate catastrophe. Fairness
is the issue. Owning a valuable dwelling, for example, is no
longer the sign of a hefty income. Homeowners angry at being
repeatedly dunned on the basis of a long-paid-for house have
become the nucleus of a nationwide anti-property tax rebellion
whose most jarring manifestation occurred, as it happens, in
Michigan. In March 1993, public schools in the town of Kalkaska
shut down after citizens rejected the school levy. Just as alarming
are potentially crippling court cases in more than 40 states
provoked by the ghettoization that results when only districts
with high real estate values can finance decent schools.
</p>
<p> In such desperate straits, Engler's radical solution became
attractive. After the vote last week, Ernest Boyer, president
of the Carnegie Foundation for the Advancement of Teaching,
declared, "One thing is clear. A more equitable and stable method
of financing public schools must be found, and Michigan has
clearly taken a bold step in that direction." Officials in Rhode
Island, South Carolina, New Hampshire and Vermont all asked
for detailed projections of Engler's plan.
</p>
<p> Not everyone was so enamored of it. Sales taxes are regressive:
poor people who exhaust their earnings on taxable goods and
services will be hit harder than the well off, who spend less
of their disposable income. And although the per-student minimum
gave it the appearance of egalitarianism, that impulse seems
offset by a loophole exempting the state's 40 wealthiest districts
from limits on per-pupil spending. Furthermore, sales-tax revenues
are notorious for sudden plunges when consumer spending slows
down during a recession. Warns Raymond Mackey, a regional director
of the American Federation of Teachers, which opposed the measure:
"There will be fiscal problems in the future. That's not a warning
but a fact."
</p>
<p> Indeed, Michigan voters, who had turned down five previous sales-tax
hikes, voted for this one only because Engler had arranged that
if it was defeated, the automatic alternative would be a dreaded
income-tax increase. If enough voters felt whipsawed by this
unappetizing choice, their next chance to express it would be
when Engler runs again this November.
</p>
<p> Nonetheless, a close aide of Engler's described him as "ecstatic"
at his plan's victory, and a referendum-night party at the Sheraton
Lansing Hotel turned into a noisy rally for his re-election.
For 20 years something of a Republican hatchet man in the state
legislature, he risked a rap for callousness during his first
gubernatorial year when he abruptly eliminated the state's nonfamily-welfare
program: the following winter, several former recipients froze
to death, homeless. Last week's deal, which was supported by
Detroit's mayor Dennis Archer, a liberal Democrat, made Engler
look more statesmanlike. It also seemed to put him on the side
of the children, which to a politician is like being on the
side of the angels. Last week some of his supporters in the
conservative wing of the Republican Party began mentioning him
for national office.
</p>
</body>
</article>
</text>