Les Jones

Economics > Virginia Postrel on Tax Re-distribution to Poor Schools in Texas

Virginia Postrel recounts the disaster of the Texas "Robin Hood" system for equalizing funding among school districts.

The gist is that the system destroyed housing values. Affluent homes in high property tax neighborhoods suddenly made no sense: the property taxes were rising to pay for the new system, but the homeowners paying the taxes saw no benefit, which depressed the very home values which were the basis of the system. Average loss in home value was $27,000.

Postrel is quick to note that the problem wasn't redistribution per se, but the particular form of redistribution:

The economists are quick to note that their critique is not a condemnation of redistributing school funds. Rather, it's a brief for bringing well-established principles of efficient taxation to bear on school finance. Transfers, Professor Hoxby argues, should be funded through a statewide tax, while local taxes pay for local amenities.

But even local taxes could be more efficient. Instead of confiscating 100 percent of everything above a certain property-value threshold, says Ms. Kuziemko, the state could take a much smaller percentage of the whole tax base.

"One of the principles of public finance is that having a high tax rate on a small base is very inefficient," she says, "whereas having a lower tax rate on a larger base is less distortionary."

Just as ideological foes of electricity deregulation exploited the California experience to attack deregulation in general, some people opposed to redistribution on principle now point to Robin Hood. But just as California's complex system was not true deregulation, so Robin Hood does not represent the only way to transfer funds to poor school districts.