Tax shift

Abstract: School finance reform in Michigan involved centralization (at the state level) of spending decisions about schools, a large tax shift (mostly from property to sales), and a small tax cut. The changes came about after two decades of failed attempts to reduce property taxes in the state, and were the immediate result of an unlikely piece of legislation that abolished all funding for public schools. Unlike most centralized systems, foundation grants in Michigan differ by district. Distributionally, the reforms favor residents of small, rural districts (whose spending was increased sharply). Residents of poorer urban areas, including Detroit, lost net income as a result of the reforms, as did residents of some of the richest suburbs in the state. Michigan permits a number of districts to supplement their foundation grants by limited amounts, a strategy that we argue may be a promising way of combining the efficiency benefits of local control with the equity benefits of foundation grant systems.

Abstract: This volume examines the possibilities and pitfalls for successful financial sector tax reform from theoretical, empirical and practical perspectives. It explores the possibilities and limitations of ""big ideas"" such as removal of all capital income taxation, the application of VAT to financial services, or heavy reliance on financial transactions taxes. The risks of attempting to use financial sector taxes as corrective instruments are stressed. Two defensive criteria are advanced as key: making the financial tax system as arbitrage- and inflation-proof as possible.