Thursday, June 2, 2011
Justin M. Ross
(Indiana University, School of Public & Environmental Affairs) has posted School District Income Taxes: New Revenue or a Property Tax Substitute?
on SSRN. Here is the abstract
Though a few states have permitted school districts to adopt an income tax, most have statutory requirements for the use of funds or otherwise limit the eligibility of the school districts to a subset of circumstances. Ohio, by contrast, has permitted schools to adopt a residency based income tax for any permissible use of public funds since the 1980's. Using a panel of 609 Ohio school districts from 1990 to 2008, this paper investigates the implementation of a school district income tax on the effective real property millage rate. The findings indicate that a one percent increase in the income tax rate reduces the effective real mills rate by about $3 per $1,000 of taxable property. The income tax's effect accumulates very quickly after its adoption, and persists for years afterward. Simulations on real data imply that about 30% of income tax revenue displaces the property tax. There is also evidence that school districts continue to mimic reductions in their neighbor's millage rate, even when the reduction is caused by higher income tax rates.