Taxes and Bonds and Schools, Oh My!

Cartoon drawing of James Madison and Alexander Hamilton holding a copy of the Federalist Papers
Cartoon drawing of James Madison and Alexander Hamilton holding a copy of the Federalist Papers

Artwork from The Partially Examined Life podcast

In 1787, Alexander Hamilton, John Jay and James Madison penned a collection of essays that were published in what has since become known as “The Federalist Papers”. The focus of their essays was primarily to promote ratification of the Constitution, but some of what they wrote also served as a road map for how citizens could stay engaged in government and governance. For example, in Federalist #49, Madison wrote:

“As the people are the only legitimate fountain of power, and it is from them that the constitutional charter is derived, it seems strictly consonant to the republican theory to recur to the same original authority…whenever it may be necessary to enlarge, diminish, or new model the powers of government.”

One could interpret Madison’s statement as referring to the need for legislators and voters to amend the United States Constitution as needed, but, in a sense, I believe he was also foreshadowing the need for enacting local reforms and funding mechanisms, such as when, in 1949, North Carolina voters overwhelmingly approved a school construction bond 69% to 31%, or in 1996 when we passed a $1.8 billion dollar bond that would improve public school infrastructure. Then there was the Connect NC economic development bond in 2016, in which voters approved spending $2 billion dollars, much of which went for improving community college campuses. But for the most part, it has been up to voters in each county to decide when and how we should float bonds and spend taxpayer dollars on local school projects. And that brings me to last month’s school bond referendum, in which Guilford County residents voted to spend $1.7 billion dollars on school construction and maintenance projects.

The Guilford measure passed 61% to 39%, so obviously, county residents believed it was time to spend money on schools. But on election day, those same voters rejected a quarter cent increase in sales tax by a margin of 55% to 45%. Here’s where it gets confusing. In fact, I think James Madison would be scratching his head at the incongruity of those results. That’s because what Guilford voters didn’t seem to realize is that an increase in sales taxes would help us retire the debt on the bond that they just approved. Instead, county commissioners are having to set aside $50 million dollars of the next budget to help pay for the $1.7 billion dollar bond, AND much of that money will come from a hike in the property tax rate.

The ironic thing about voters approving the school bond, but not the rise in sales tax, is that the latter not only would help pay for the former, but levying taxes on the sale of goods is the most equitable revenue-producing system that we have. For example, if I can afford to buy a new lawnmower, and you can afford to buy a yacht, then we both pay sales tax at the same rate. The sales tax on my new lawnmower might be $20 and the sales tax on your new yacht might be $20,000. But if property tax rates go up and I’m struggling to make ends meet, I may not have enough money to pay the increase, much less buy my new lawnmower.

There are those who believe that Guilford County Commissioners will try and put the sales tax issue back on the ballot in November, but unless they do a better job of educating voters about the benefits of raising the sales tax rate versus raising property taxes, then as likely as not, the outcome of that referendum will be the same as the one before.

 
 

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