This Spring’s Tax Debates
If you follow state legislatures in the South, you’ve likely seen tax proposals moving this spring.
In Georgia, lawmakers have introduced the HOME Act, a plan to phase out property taxes on primary residences by 2032. It would encourage local governments to increase sales taxes instead, even though analysis shows sales taxes won’t be enough to replace the lost revenue.
In Kentucky, lawmakers recently passed legislation to lower the income rate from 4% to 3.5% this year, continuing a trend of incremental income tax cuts tied to revenue triggers. Budget analysis warns that these cuts will cost Kentucky $718 million annually that could otherwise support schools and other public services.
Across the South, similar trends are underway. Arkansas, Mississippi, North Carolina, South Carolina, and Louisiana have also passed legislation to reduce personal or corporate income tax. Gubernatorial candidates in Georgia and South Carolina have made tax reduction a core campaign message ahead of the 2026 elections.
These policies raise an important question for education advocates about how tax policy matters for schools and students.
Is Tax Policy an Education Issue?
Every dollar that flows through a school funding formula comes from somewhere.
In most Southern states, the largest portion of that “somewhere” is state and local tax revenue. Federal dollars are important, but they make up a smaller share of total K–12 funding, and most times are temporary or targeted funds.
State revenue policy is one of the most powerful levers shaping what’s possible for public education.
When states permanently reduce revenue through tax cuts or exemptions, they’re reshaping long-term fiscal capacity, not just adjusting next year’s budget. States can also set policy affecting local government taxation, such as setting limits on property taxes. (Quick aside: Local property taxes are deeply inequitable, but they are also very stable and provide a major source of local school funding. Reducing or eliminating property taxes has caught on as a policy idea, but it will cause more problems than it solves.)
Funding formulas can be carefully designed and equity-driven, and that is a crucial part of school funding advocacy. But if a major education funding source shrinks, a formula’s potential for positive impact shrinks with it.
That’s why tax policy is not a side conversation for education advocates. It’s part of the same story.
The Broader Fiscal Context
This year’s tax debates are happening at a moment when multiple financial pressures are converging.
The ESSER Cliff
Federal COVID relief dollars (ESSER) are going away. Districts must spend the final portion of those funds by the end of March 2026 at the latest. Over the last five years, Southern states each received roughly $2 billion to $4 billion in ESSER funding – a significant and temporary boost to education budgets.
Rising Costs and Greater Student Need
States are also facing rising education costs, from bringing teacher pay into the 21st century to growing special education expenses. Research also shows widening achievement gaps and greater student mental health needs.
Tighter State Budgets
State economies are slowing. Many states are absorbing new costs related to federal SNAP and Medicaid changes, and some states are seeing lower tax collections. Check out this dashboard from Bellwether to see information on your state.
Continued Tax Cuts
Despite these pressures, many states are continuing the tax-cut trend that accelerated during the years of pandemic surpluses. While tax cuts may be politically popular, they can also lead to unsustainable conditions for states and districts.
When states reduce income taxes, give corporate tax refunds, constrain property taxes, or shift toward greater reliance on sales taxes, they create systems that are more volatile, less equitable, and provide less funding overall. That is because sales taxes tend to fluctuate more in economic downturns and place a heavier burden on low-income families. Replacing income or property taxes with sales taxes can reduce reliability without necessarily generating sufficient revenue to meet long-term needs.
Policymakers may frame these decisions as growth strategies or taxpayer relief, but all of these policies carry tradeoffs. If revenue capacity declines while costs rise, state leaders will eventually face difficult choices about cutting publicly funded services. Those cuts often fall hardest on low-wealth districts and students with the highest needs.
What History Tells Us About Revenue Recovery
What will happen to available revenue for K-12 education if these trends continue? While national indicators show a mixed picture on whether an official recession is on the way, looking back at historical trends can still help us respond in the present and prepare for the future.
Using 2008 as a baseline and adjusting for inflation, we can see how federal, state, and local K–12 revenue changed over time. All the data below has been adjusted for inflation, with all amounts converted to 2023 dollars. To see the full methodology, visit Appendix 1.
After the Great Recession, state funds declined sharply and federal funds temporarily increased through stimulus aid. On average across the country, it took until 2015 for total K-12 funding to return to pre-recession levels.
In the South, recovery for total K-12 revenue took longer, roughly four years after federal stimulus dollars expired.
In several Southern states, K-12 funding from state sources did not fully return to pre-recession levels well into the 2020s.
The key takeaway is not that another recession is guaranteed, but that revenue declines – especially at the state level – are not easily or quickly reversed. If states structurally reduce revenue through tax cuts and make fewer investments to education, they may enter future downturns with less flexibility. Full recovery for education investment could take years.
If you’d like to see the detailed data for your state, we’re happy to share additional analysis.
Spelling Out the Stakes
Revenue decisions matter beyond a single budget cycle.
When state revenue declines — whether due to economic slowdown or structural tax cuts — reinvestment in education can stall for years. After the Great Recession, some states froze teacher pay, increased staff-to-student ratios, or postponed facility improvements.
Southern states educate more than one-third of the nation’s public school students and more than half of all Black students in the country. Our region already invests less per pupil than much of the country.
Over the past several years, many Southern states have made important progress on funding reform. Student-based formulas, new weights for high-need students, and efforts to increase transparency represent meaningful steps forward.
But sustained investment depends on stable revenue.
This does not mean that every tax policy change is harmful or that there are no thoughtful reforms available. States can strengthen their tax codes through targeted changes, close loopholes, or design relief that does not undermine long-term fiscal health.
Sweeping, permanent revenue reductions, however, move in the opposite direction of what states, schools, and students need right now.
Education advocates play a critical role in helping policymakers connect these dots.
What Does This Mean for Advocates in 2026?
For many advocates, revenue policy has historically lived in a separate lane from education funding advocacy. But now that those lanes are converging, here are a few practical next steps:
- Understand your state’s revenue mix, such as how much comes from income, sales, property, and other taxes.
- Build or deepen partnerships with revenue-focused organizations in your state.
- Monitor major tax legislation alongside education bills this session.
- Talk to policymakers about how tax legislation could impact education.
- Use historical data to communicate the long-term implications of structural revenue changes.
Going Deeper
Southerners for Fair School Funding has been exploring these questions over the past year, and we recently put out the Revenue Strategy Lab – a learning series designed to break down how state revenue systems work and how they affect school funding. See additional resources below.
To learn more about how revenue policy and education intersect:
To stay up to date on major legislative proposals in your state:
If this spring’s tax debates have raised questions for you, feel free to reach out.
Revenue may not always be the most visible education issue. But it shapes what’s possible, for the students of today and the years ahead.
Questions? Reach out to fundsouthernschools@edtrust.org.
Appendix: Data Sources & Methodology
Data Sources
This analysis draws on publicly available federal datasets:
Methodology
The charts follow the analytical approach used in: Jackson, C. K., Wigger, C., & Xiong, H. (2021). Do school spending cuts matter? Evidence from the Great Recession. American Economic Journal: Economic Policy, 13(2), 304–335.
Like that study, we measure how each revenue source changed relative to the size of the entire school funding system before the recession (i.e., the 2008 fiscal year). However, this analysis extends the timeframe through 2023 (rather than ending in 2015) and adjusts all values to 2023 dollars (instead of 2015 dollars).
Fiscal year 2008 is used as the baseline because it represents the last full fiscal year before the Great Recession significantly affected state and local revenues.
Regional Scope
In addition to national totals, we analyze trends for the Southern region defined as Southerners for Fair School Funding’s 10-state focus area: Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, and Virginia.
How to Read the Charts
Think of 2008 total K–12 revenue as the yardstick.
For each year after 2008, we calculate how much federal, state, and local revenue changed compared to 2008. We then express that change as a percentage of total 2008 revenue, not as a percentage of that funding source alone.
In other words, these charts answer this question: How large was the change in federal, state, or local revenue compared to the entire school funding system in 2008?
This approach shows how shifts in each revenue source affected the overall system, not just the source itself. This allows for meaningful comparisons across states with different funding structures.
Important Notes
- Y-axis ranges vary across some state charts to reflect differences in magnitude.
- The same national CPI adjustment factor was applied to all states.
- All figures are based on annual totals reported by the U.S. Census Bureau. These totals include all funds allocated to K–12 public school systems in that year — not only funds distributed through the primary state funding formula or major federal programs like Title I.
- Federal pandemic relief funds (including ESSER) are included in federal revenue totals in the years they were received.
- This analysis focuses on total revenue amounts and does not adjust for changes in student enrollment over time.
For questions about the methodology or to request the raw data used in these charts, please contact Southerners for Fair School Funding at fundsouthernschools@edtrust.org.
Tax Season at the Statehouse: The Stakes for Schools
Regional
By Juliana Hoover Potash, MPP, Senior Manager of Advocacy and Engagement
This Spring’s Tax Debates
If you follow state legislatures in the South, you’ve likely seen tax proposals moving this spring.
In Georgia, lawmakers have introduced the HOME Act, a plan to phase out property taxes on primary residences by 2032. It would encourage local governments to increase sales taxes instead, even though analysis shows sales taxes won’t be enough to replace the lost revenue.
In Kentucky, lawmakers recently passed legislation to lower the income rate from 4% to 3.5% this year, continuing a trend of incremental income tax cuts tied to revenue triggers. Budget analysis warns that these cuts will cost Kentucky $718 million annually that could otherwise support schools and other public services.
Across the South, similar trends are underway. Arkansas, Mississippi, North Carolina, South Carolina, and Louisiana have also passed legislation to reduce personal or corporate income tax. Gubernatorial candidates in Georgia and South Carolina have made tax reduction a core campaign message ahead of the 2026 elections.
These policies raise an important question for education advocates about how tax policy matters for schools and students.
Is Tax Policy an Education Issue?
Every dollar that flows through a school funding formula comes from somewhere.
In most Southern states, the largest portion of that “somewhere” is state and local tax revenue. Federal dollars are important, but they make up a smaller share of total K–12 funding, and most times are temporary or targeted funds.
State revenue policy is one of the most powerful levers shaping what’s possible for public education.
When states permanently reduce revenue through tax cuts or exemptions, they’re reshaping long-term fiscal capacity, not just adjusting next year’s budget. States can also set policy affecting local government taxation, such as setting limits on property taxes. (Quick aside: Local property taxes are deeply inequitable, but they are also very stable and provide a major source of local school funding. Reducing or eliminating property taxes has caught on as a policy idea, but it will cause more problems than it solves.)
Funding formulas can be carefully designed and equity-driven, and that is a crucial part of school funding advocacy. But if a major education funding source shrinks, a formula’s potential for positive impact shrinks with it.
That’s why tax policy is not a side conversation for education advocates. It’s part of the same story.
The Broader Fiscal Context
This year’s tax debates are happening at a moment when multiple financial pressures are converging.
The ESSER Cliff
Federal COVID relief dollars (ESSER) are going away. Districts must spend the final portion of those funds by the end of March 2026 at the latest. Over the last five years, Southern states each received roughly $2 billion to $4 billion in ESSER funding – a significant and temporary boost to education budgets.
Rising Costs and Greater Student Need
States are also facing rising education costs, from bringing teacher pay into the 21st century to growing special education expenses. Research also shows widening achievement gaps and greater student mental health needs.
Tighter State Budgets
State economies are slowing. Many states are absorbing new costs related to federal SNAP and Medicaid changes, and some states are seeing lower tax collections. Check out this dashboard from Bellwether to see information on your state.
Continued Tax Cuts
Despite these pressures, many states are continuing the tax-cut trend that accelerated during the years of pandemic surpluses. While tax cuts may be politically popular, they can also lead to unsustainable conditions for states and districts.
When states reduce income taxes, give corporate tax refunds, constrain property taxes, or shift toward greater reliance on sales taxes, they create systems that are more volatile, less equitable, and provide less funding overall. That is because sales taxes tend to fluctuate more in economic downturns and place a heavier burden on low-income families. Replacing income or property taxes with sales taxes can reduce reliability without necessarily generating sufficient revenue to meet long-term needs.
Policymakers may frame these decisions as growth strategies or taxpayer relief, but all of these policies carry tradeoffs. If revenue capacity declines while costs rise, state leaders will eventually face difficult choices about cutting publicly funded services. Those cuts often fall hardest on low-wealth districts and students with the highest needs.
What History Tells Us About Revenue Recovery
What will happen to available revenue for K-12 education if these trends continue? While national indicators show a mixed picture on whether an official recession is on the way, looking back at historical trends can still help us respond in the present and prepare for the future.
Using 2008 as a baseline and adjusting for inflation, we can see how federal, state, and local K–12 revenue changed over time. All the data below has been adjusted for inflation, with all amounts converted to 2023 dollars. To see the full methodology, visit Appendix 1.
After the Great Recession, state funds declined sharply and federal funds temporarily increased through stimulus aid. On average across the country, it took until 2015 for total K-12 funding to return to pre-recession levels.
In the South, recovery for total K-12 revenue took longer, roughly four years after federal stimulus dollars expired.
In several Southern states, K-12 funding from state sources did not fully return to pre-recession levels well into the 2020s.
The key takeaway is not that another recession is guaranteed, but that revenue declines – especially at the state level – are not easily or quickly reversed. If states structurally reduce revenue through tax cuts and make fewer investments to education, they may enter future downturns with less flexibility. Full recovery for education investment could take years.
If you’d like to see the detailed data for your state, we’re happy to share additional analysis.
Spelling Out the Stakes
Revenue decisions matter beyond a single budget cycle.
When state revenue declines — whether due to economic slowdown or structural tax cuts — reinvestment in education can stall for years. After the Great Recession, some states froze teacher pay, increased staff-to-student ratios, or postponed facility improvements.
Southern states educate more than one-third of the nation’s public school students and more than half of all Black students in the country. Our region already invests less per pupil than much of the country.
Over the past several years, many Southern states have made important progress on funding reform. Student-based formulas, new weights for high-need students, and efforts to increase transparency represent meaningful steps forward.
But sustained investment depends on stable revenue.
This does not mean that every tax policy change is harmful or that there are no thoughtful reforms available. States can strengthen their tax codes through targeted changes, close loopholes, or design relief that does not undermine long-term fiscal health.
Sweeping, permanent revenue reductions, however, move in the opposite direction of what states, schools, and students need right now.
Education advocates play a critical role in helping policymakers connect these dots.
What Does This Mean for Advocates in 2026?
For many advocates, revenue policy has historically lived in a separate lane from education funding advocacy. But now that those lanes are converging, here are a few practical next steps:
Going Deeper
Southerners for Fair School Funding has been exploring these questions over the past year, and we recently put out the Revenue Strategy Lab – a learning series designed to break down how state revenue systems work and how they affect school funding. See additional resources below.
To learn more about how revenue policy and education intersect:
To stay up to date on major legislative proposals in your state:
If this spring’s tax debates have raised questions for you, feel free to reach out.
Revenue may not always be the most visible education issue. But it shapes what’s possible, for the students of today and the years ahead.
Questions? Reach out to fundsouthernschools@edtrust.org.
Appendix: Data Sources & Methodology
Data Sources
This analysis draws on publicly available federal datasets:
Methodology
The charts follow the analytical approach used in: Jackson, C. K., Wigger, C., & Xiong, H. (2021). Do school spending cuts matter? Evidence from the Great Recession. American Economic Journal: Economic Policy, 13(2), 304–335.
Like that study, we measure how each revenue source changed relative to the size of the entire school funding system before the recession (i.e., the 2008 fiscal year). However, this analysis extends the timeframe through 2023 (rather than ending in 2015) and adjusts all values to 2023 dollars (instead of 2015 dollars).
Fiscal year 2008 is used as the baseline because it represents the last full fiscal year before the Great Recession significantly affected state and local revenues.
Regional Scope
In addition to national totals, we analyze trends for the Southern region defined as Southerners for Fair School Funding’s 10-state focus area: Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, and Virginia.
How to Read the Charts
Think of 2008 total K–12 revenue as the yardstick.
For each year after 2008, we calculate how much federal, state, and local revenue changed compared to 2008. We then express that change as a percentage of total 2008 revenue, not as a percentage of that funding source alone.
In other words, these charts answer this question: How large was the change in federal, state, or local revenue compared to the entire school funding system in 2008?
This approach shows how shifts in each revenue source affected the overall system, not just the source itself. This allows for meaningful comparisons across states with different funding structures.
Important Notes
For questions about the methodology or to request the raw data used in these charts, please contact Southerners for Fair School Funding at fundsouthernschools@edtrust.org.
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