Dumbing Down Oregon K12 Graduates

Oregon has scrapped the requirement that graduating seniors show basic proficiency in reading, writing and math in order to receive a high school diploma.  With the passage of Senate Bill 744 last month, the graduating class will not have to demonstrate this minimal competency.  A spokesperson for the Governor said she adopted the policy to benefit “Oregon’s black, Latino, Latina, Latinx, Indiginous, Asian, Pacific Islander, Tribal, and students of color.” 

The idea appears to be that, because some minorities “do not test well”, it is better to forever stigmatize their entire graduating class with a second-rate diploma and education experience. The students are potentially missing out on an opportunity to learn.  As research reviewed in the Scientific American in 2015 revealed, testing offers an important means of learning.  The positive effects of the mental retrieval process involved in preparing for and taking tests has 100 years of research support.  

The poor quality and ineffectiveness of the Oregon K-12 school system should not come as a surprise to Oregonians.  The US News’ Best States rankings for 2021, place Oregon’s school system quality at a paltry 35 out of 50.  Oregon’s Adjusted Cohort Graduation Rate (ACGR) of only 80 percent ranks it as 37th, beaten out by Louisiana at 36th.  

Graduation rates are well known to be statistically important indicators of student performance and prospects.  By this criterion, Whites and Hispanic students have higher ACGR graduation rates than Blacks, at 81.3, 76.2, and 70.0 percent, respectively.  All three rates are exceeded by Asians with a graduation rate of 92.0 percent.  

The performance of Asian students inconveniently belies the common woke claim that minorities’ performance and opportunities have been uniformly held back by some sort of racism instituted by the "privileged class" of Oregon society.  If this were so, then Asians’ consistent outperformance of Whites would not be observed.  The fact that such disparate performance is observed in the same school system suggests that other forces may be at work to make the school experience nadequately responsive to student differences.  

On the student side, the disparate performance can arise from family or other background influences that vary by student.  But it may also be the case that the school system is overly homogenous in its curriculum, teaching methods, or in other structural ways.  During the Covid-19 pandemic, the Oregon school system proved itself to be blatantly and obviously unable to adjust to a different set of circumstances.  Meanwhile the parochial and private schools largely remained open and functional. 

Policies like SB 744, are just ruses to paper over Oregon public school failings.  Oregon should, instead, encourage more flexibility in the provision of K-12 education services.  This would obviate the need for neo-racism programs to create the illusion of caring for the students.  

The Netherlands, with its much more diverse population than Oregon provides a useful model.  The Netherlands allows largely unrestricted entry of private and parochial schools.  Most are supported by capitation payments made by the State.  They are free to implement their own curricula and teaching methods.  Consistency is maintained only by proscribing certain minimum school sizes, compulsory “core” subjects, and by testing learning outcomes on those core subjects.  The Netherlands has schools run by government, too.  But the private competition sets the pace for the whole system.  

It is clear that diversity of providers is a successful model. Two-thirds of Dutch schools were privately run in 2009.  Their PISA score is consistently higher than Sweden, Denmark, Germany, Belgium, Switzerland, Australia, Norway, and the United States.  Instead of moving the goal posts via such things SB 744, Oregon should advance real reform.  That starts by allowing unfettered private entry, and letting parents use of the current per-student public payments, pari passu, to pay for a better education for their kids. 

Focus on Income Inequality: Is it Misleading Policy Makers?

A popular press refrain is that the US suffers from income inequality.  Progressive politicians  translate this to a call for high income households to pay their “fair share” in taxes.  This blog evaluates the current degree of income inequality and addresses the notion that making the tax system more progressive would redress this issue.  

The primary source of income inequality measures is the US Census Bureau and Bureau of Labor Statistics.  They use the Current Population Survey (CPS) data to regularly measure and report household incomes by quintile.  These data give the press and the public the widely quoted measure of income inequality in our economy.  Figure 1 presents the most recent 4 years of the reported, mean household income, by quintiles, and the top 5 percent of the distribution.  

Figure 1.  Mean Income, by Quintile, in Current Dollars  (from US Census: Table H-3)

The ratio in 2019 of the highest quintile to the lowest is about 17, a number that is seen by many proponents of the income disparity movement as excessive.  That one-fifth of US households should earn 17 times that the lowest fifth is proof, to such critics, that a largely free market economy produces “unfair” outcomes.  There are numerous reasons why this comparison is naive, at best.

For one thing, this tabulation is of households and thus does not speak directly to the incomes of individual workers.  Each quintile has 25,000 households.  Households in the lowest income quintile have fewer people in them and more individuals reporting zero earnings.  On the other hand, there are 4.5 times as many earners in the highest income household quintile as in the lowest income household quintile. 

Additionally, the Census does not include income received by the lowest quintile households through many, existing redistributive programs.  This includes such major programs as “negative taxes” such as the Earned Income Tax Credit (EITC), the value of food stamps, medical care, rental assistance, or other existing free or subsidized services targeting low income households.  John F. Early, a former assistant commissioner of the Bureau of Labor statistics, estimated in 2018 that as a result of these omissions, the incomes of the lowest quintile households are understated by “a factor of two or more”.  

Most importantly, the Census data does not account for taxes paid by households with taxable income.  Focusing on the distribution of income without accounting for the associated tax liability exaggerates the disparity of financial resources available to the various household quintiles.  Taxes paid by higher income households reduce those households’ disposable incomes.  Failure to credit the redistributions of the income households’ tax revenue to lower income households exaggerates further the appearance of income disparity.  The greater is the redistribution from high income households to lower income households, the more progressive a tax system is said to be.  On these grounds, the US tax system is one of the most progressive in the world.  

Although income is concentrated in the top percentile groups, tax paying responsibility is even more concentrated.  This concentration of both incomes and taxes is illustrated in Figure 2.  The greater concentration of the share of taxes paid than the shares of income is the signature of tax progressivity.  In the US case, a very small fraction of tax payers pay virtually all of federal income taxes, and their tax share is significantly greater than their revenue share.  Moreover, both distributions are very different from a perfectly equal share (each household has the same income), which is represented by the Flat Distribution line in the Figure 2 graphic

Figure 2.  Distribution of Taxable Income and Tax Obligations in the US, 2019

For example, while the top 3 percent of households earn 30 percent of all income, they pay 53 percent of all taxes.  Similarly, the top 10 percent of households earn 47 percent of all income, but pay 71 percent of all taxes.  

As Figure 2 illustrates, a perfectly “fair” system— where income and tax obligations were equal for all (displayed in the figure as a flat distribution)— would result in the need to shift a huge portion of the total tax burden onto lower income households.  Presently, all of households together that are below the 50th percentile income bear only 3 percent of the total federal income tax burden.   

Different countries address the equity issue differently, trading off concentration of income against concentration of taxation.  Figure 3 reveals this tradeoff for 23 OECD countries using income and tax system data from a 2008 OECD report.  

Figure 3.  The Tradeoff between Income Equality and Tax Progressivity

From Figure 3, there is a clear tendency for there to be a trade-off, in practice, between income concentration and taxation progressivity. Countries like the US and Ireland, for example, have noticeably unequal distributions of income, but compensate for this by also having highly progressive income taxation structures.

Conversely, although no country has a perfectly equitable income distribution (i.e., an inequality index of zero on the X-axis), the ones that come closest, such as Switzerland, Iceland, Sweden and Denmark, are associated with unprogressive tax structures.  However, that approach, especially when coupled with the need to fund government monopolies in the provision of medical care, education, child care, etc., results in the need to broaden the tax base.  The result is that low income households often end up facing high tax rates.  Poor and low income households in Sweden, for example, face very high total income tax rates (in the range of 60 percent).  This results in relatively low standards of living as measured by private consumption spending.  

This approach seems to be favored by the Biden Administration, which plans to introduce a $3.5 trillion social welfare “infrastructure” plan.  To pay for the plan, the Biden administration has stated its intent to raise marginal income and capital gains tax rates significantly on households with incomes in excess of $400,000 dollars.  However, by my estimates, in 2018, this group of taxpayers was already paying approximately three-quarters ($5.5 trillion) of all federal income taxes.  

Even assuming that the spending plans are accurate, therefore, we can expect middle- and low-income households will have to be taxed at higher rates in order to finance the planned spending.  It is difficult to estimate how much additional taxation of lower income households will have be to be.  Increasing the progressivity of the tax system may not necessarily make the distribution of income more equitable.  
Indeed, the economy can adjust so as to defeat the aims of tax reform.  For example, as Laura Jackson and her colleagues at the Federal Reserve Bank of St. Louis have pointed out, when tax progressivity increases, the bottom of the income distribution and the economy as a whole may initially benefit.  This is because lower income households benefit from an increase in disposable income because of the income transferred from higher income households.  

However, the increased marginal tax rates levied on high income households may have adverse effects on investment and employment of others.   As higher income households save, invest and employ less, there will be less taxable income to tax.  To maintain the high Federal spending, the tax base will have to expand to lower income households.

This may explain why, in Figure 3, there are no countries that, in equilibrium, are able to simultaneously maintain both a progressive tax system and equality of income before taxes.  In my view, the emphasis on disparities of income alone, without considering taxation, misleads policy makers. 

_____________

Sources: 

US Census Bureau, Historical Income Tables: Income Inequality, Table H-3, April 04-04-2021.   https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-inequality.html

OECD (2008), Growing Unequal? ISBN 978-92-64-044180-0, Table 4.5. Alternative measures of progressivity of taxes in OECD countries, 2008.   

Early, J.F. (2018). “Reassessing the Facts about Inequality, Poverty, and Redistribution”, Policy Analysis, CATO Institute, Number 839.

Jackson, Laura E.; Otrok, Christopher; and Owyang, Michael T. (2019). “Tax Progressivity, Economic Booms, and Trickle-Up Economics.” Federal Reserve Bank of St. Louis Working Paper 2019-034A.

IRS, Statistics of Income Division,  October 2020