Introduction The federal tax treatment of the family is affected by several major structural elements of the income tax code applicable to all taxpayers: deductions such as the standard deduction, personal exemptions, and itemized deductions; the marginal tax rate structure (which varies by filing status); the earned income credit and the child credit; and the alternative minimum tax. Some of these provisions affect only high-income families and some only low-income families, but they are the tax code's fundamental structural features. They lead to varying tax burdens on families depending on whether the family is headed by a married couple or a single individual, whether children are in the family, and the number of children if so. The 2017 tax revision ( P.L. 115-97 , popularly known as the Tax Cuts and Jobs Act, or TCJA) changed many of these fundamental provisions, although those changes are scheduled to expire after 2025. This report examines these temporary changes and how they affect families. The prior provisions (and ones that will return absent legislative changes) are discussed in a previous CRS report, which also includes the historical development of family-related provisions and some of the justifications for differentiating across families, especially with respect to the number of children. This report does not consider other, more narrowly focused tax code provisions, such as those that apply only to certain types of income (e.g., special treatment for certain types of capital income or self-employment income) or particular additional benefits (e.g., benefits for the blind and elderly or for child care expenses). The first section discusses the structural changes made in the TCJA, and the following sections discuss equity issues and the marriage penalty. Structural Changes Made in the TCJA Taxes are determined by first subtracting deductions (either the standard deduction or the sum of itemized deductions) and personal exemptions (for the taxpayer, their spouse [if married filing jointly], and any dependents) from income to arrive at taxable income. Then the marginal rate structure is applied to this measure of taxable income. Finally, tax credits are subtracted from this amount to determine tax liability. Two of the major credits claimed by families are the earned income tax credit (EITC) and the child tax credit. The new law expanded the child credit for many taxpayers, although it did not change the earned income tax credit. In addition to these provisions, the law changed the exemption levels for the alternative minimum tax (a tax aimed at broadening the overall tax base and applying flat rates with a large fixed exemption), which is imposed if it is larger than the regular tax. All amounts in this discussion are for 2018, the year the tax changes were first implemented. Some amounts will change in the future as they are indexed for inflation. The revision also changed the measure used to index for inflation to the chained consumer price index (CPI) rather than the basic CPI. The chained CPI takes into account changes in the mix of spending, and because spending tends to increase for goods with smaller price increases, the chained CPI is smaller than the basic CPI. For 2018, it only affected the EITC (in a minor way), as the other provisions (such as standard deductions and the rate structure) were stated explicitly in the tax revision. Standard Deduction, Itemized Deductions, and Personal Exemption and Child Credits In calculating their taxable income, taxpayers may subtract either the standard deduction or the sum of their itemized deductions. The standard deduction varies by the taxpayer's filing status: single (an unmarried individual with no dependents), joint (a married couple), and head of household (a single parent). The standard deduction is beneficialâthat is, it results in a lower tax liabilityâwhen itemized deductions (such as for state and local taxes, mortgage interest, and charitable contributions) are smaller than the standard deduction amount. The standard deduction is annually adjusted for inflation. Under prior law, taxpayers could claim a personal exemption for themselves and each family member. In addition, a child credit was allowed for children under the age of 17. The child credit was (and still is) partially refundable, so that taxpayers with no tax liability can receive some or all of the child credit as a refund greater than taxes owed. The refundable portion of the credit was limited to 15% of earned income in excess of $3,000. (The refundable portion of the child credit is sometimes referred to as the additional child tax credit or ACTC. The lowest-income taxpayers generally receive all of the child credit in the form of the ACTC.) Personal exemptions and child credits were phased out under prior law. Personal exemptions were indexed for inflation, but the child credit was not. As shown in Table 1 , the 2017 tax revision substantially increased the standard deduction and the maximum amount of the child credit while eliminating the personal exemption. It also increased the refundable portion of the child credit, both by increasing the maximum amount of the ACTC and by reducing the earned income amount used to calculate the ACTC. It also substantially increased the level at which the child credit is phased out. For many taxpayers, the amount of income exempt from tax (i.e., the amount subtracted before applying tax rates) has increased under the 2017 tax revision. For example, prior to P.L. 115-97 , a married couple with no children that claimed the standard deduction would have $21,300 in tax-exempt income (the combination of a standard deduction of $13,000 and two personal exemptions for the taxpayers of $4,150). Under current law, their first $24,000 would not be subject to tax. In general, the loss of personal exemptions for children was more than offset by increases in the maximum child credit from $1,000 per child to $2,000 per child. The act also provided a $500 credit for dependents that did not qualify for the child credit. Higher-income families with children also benefited from the increase in the new child credit's phaseout level, which was higher than the previous personal exemption and significantly higher than the prior-law child credit's phaseout range (see Table 1 ). As under prior law, the standard deduction will be annually adjusted for inflation and the child credit (or family credit) will not be adjusted for inflation (with the exception of the $1,400 limit on refundability, which is indexed). The prior-law personal exemption was indexed annually for inflation. Were these provisions to be continued over a long period, the child credit would continually decline in real value, whereas the prior-law personal exemption would not. Moreover, the new inflation index is less generous than the prior one. The tax change also restricted itemized deductions. Although it retained the major itemized deductions for mortgage interest, state and local taxes, and charitable contributions, it limited the deduction for state and local taxes to $10,000, reduced the cap on mortgages with interest eligible for the deduction from $1 million to $750,000, and eliminated a number of other minor itemized deductions. These amounts are not indexed for inflation. As a result of increases in the standard deduction and restrictions on itemized deductions, about 13% of taxpayers are expected to itemize deductions, compared to 30% under prior law. Analysis suggests most of those who continue to itemize are higher income. Earned Income Tax Credit The other major tax credit for families under current law is the earned income tax credit (EITC). This credit is aimed at helping lower-income workers and is fully refundable, meaning that those with little to no income tax liability can receive the credit's full amount. While the credit is generally available to all low-income workers, the credit formula is much more generous for families with children, and the majority of benefits go to families with children. The EITC varies based on a recipient's earnings: the credit equals a fixed percentage (the credit rate ) of earned income until it reaches its maximum level. The EITC then remains at its maximum level over a subsequent range of earned income, between the earned income amount and the phaseout amount threshold . Finally, the credit gradually phases out to zero at a fixed rate (the phaseout rate ) for each additional dollar of adjusted gross income (AGI) (or earned income, whichever is greater) above the phaseout amount threshold. The credit rate, earned income amount, maximum credit, and phaseout amount threshold all vary by number of children, and are more generous for families with more children, as illustrated in Figure 1 . In 2018, the maximum credit amounts were $519, $3,461, $5,716, and $6,431 for families with zero, one, two, or three or more children, respectively. In addition, the phaseout amount threshold is higher for married couples than for unmarried recipients. Hence, the income level at which the credit begins to phase out is slightly more than $5,000 greater for married joint filers than it is for unmarried filers (heads of households and singles). The 2017 revision made no explicit changes to the EITC, but the change in the inflation indexing formula slightly lowered the credit's value. For example, the credit's maximum value for a family with three or more children under prior law would have been $6,444, rather than $6,431 for a family with three or more children under the revision. A taxpayer with no qualifying children must be between 25 and 64 years of age to be eligible for the EITC. Rate Structure and Alternative Minimum Tax The 2017 tax revision also altered the statutory marginal tax rates that apply to taxable income. There are currently seven marginal tax rates, and the income ranges over which they apply ( tax brackets ) differ based on the taxpayer's filing status, with brackets at the lower rates half the width for singles as those of married couples (who file jointly) and heads of household in between. The width of the bracket determines how much income is taxed at a given rate and the wider the brackets the more income is taxed at lower rates. That means singles (and to a lesser extent heads of households) are subject to higher tax rates at lower levels of income than married couples. Under prior law, most taxpayers were subject to tax rates of 10% and 15%. The 10% rate applied for the first $19,050 of taxable income for joint returns, the first $13,600 for head of household returns, and the first $9,525 for single returns. The 15% bracket ended at $77,400 of taxable income for joint returns, $51,850 for heads of households, and $38,700 for singles. The tax revision retained the 10% rate, but reduced the 15% rate to 12%. Above those income levels, rates of 25%, 28%, 33%, 35%, and 39.6% applied, and single bracket widths were less than half as wide as the equivalent married brackets. The 2017 revisions reduced those rates by amounts ranging from 3 to 9 percentage points, with new rates of 22%, 24%, 32%, 35%, and 37%. Under prior law, the top rate of 39.6% applied to taxable income over $480,050 for joint returns. The new law reduced the top rate to 37% and applied it to taxable income over $600,000; the remaining taxable income that had been subject to a 39.6% rate is taxed at 35%. Under prior law, the 39.6% top rate was reached at $426,700 for singles; under the revision, the new top rate of 37% applies to taxable income over $500,000 for singles. The law also revised the alternative minimum tax. Under prior law, the alternative minimum tax imposed a 26% tax rate on alternative minimum taxable income above $86,000 for married couples and $55,400 for unmarried tax filers. The exemption began to phase out at $164,100 for married couples and $123,100 for singles. A higher rate of 28% applied to AMT taxable income above $191,500 for joint returns and $95,750 for single returns. AMT income begins with ordinary taxable income and adds back the standard deduction, personal exemptions, and state and local tax deductions for itemizers, as well as some other tax preferences (such as tax-exempt interest from private activity bonds and accelerated depreciation). The tax revision left the AMT's basic structure unchanged, but increased the exemption amounts to $109,400 for married couples and $70,300 for single returns. It also increased the phaseout point for the exemption to $1,000,000 for joint returns and $500,000 for singles. Other elements of the 2017 tax revision affected whether a taxpayer would be subject to the AMT. Whether the AMT applies depends on deductions from the regular tax compared to the AMT exemption, as well as the tax rates. Lower regular tax rates and a higher standard deduction increase the chance a taxpayer is subject to the AMT, whereas higher AMT exemptions, elimination of personal exemptions, and the limit on the deduction for state and local taxes decrease the chance a taxpayer is subject to the AMT. The rate brackets and AMT amounts are indexed annually for inflation. At higher income levels (up to slightly over $300,000 of taxable income for joint returns and about half that amount for other returns), several factors contribute to lower tax liabilities under the 2017 tax revision, primarily the relatively large reduction in marginal tax rates, as shown in the tax rates in Table 2 , Table 3 , and Table 4 . As indicated in those tables, as a result of P.L. 115-97 , marginal rates increase somewhat over narrow bands of higher income levels, particularly for heads of households and to a lesser extent single returns, before declining again. The changes in tax rates are only one factor determining tax liabilities, as other tax code featuresâincluding broadly applicable features discussed in this report and others that apply to a narrower range of taxpayersâcan affect tax liability. Treatment of Families with Different Incomes: Equity Issues The new income tax code (as well as the income tax under prior law) is progressive: as income increases and taxpayers have an increased ability to pay, tax rates rise. Studies generally suggest, however, that after taking all of the 2017 tax revision's provisions into account, higher-income groups tend to have the largest percentage increase in after-tax income. Hence, while still progressive, the new income tax is less progressive in comparison to the prior-law income tax. In addition, as time goes on, the relative tax burden on low-income families is expected to increase. This increase at the lower end of the income distribution is partially due to the new inflation indexing provision, which will reduce the earned income credit's value for low-income working families. The increased tax burden also reflects the loss of health care subsidies due to the elimination of the penalty for not purchasing health insurance. The decreased tax burdens (relative to prior law) for high-income individuals also reflect, in this distributional estimate, lower taxes' effects on capital income (including lower corporate tax rates and the pass-through deduction for business income), which affect higher-income individuals, who own most of the capital. Effects on Burdens at the Lower End of the Income Distribution The tax change had no effect on after-tax income in 2018 for low-income families that already had effectively no or negative tax liability and did not have enough income to be eligible for the maximum child credit. In future years, the inflation indexing could eventually reduce the earned income credit's value. As incomes rise, families with children will tend to benefit more than families without children, primarily due to the expanded child credit. These effects can be illustrated by comparing the prior- and current-law breakeven levels. The breakeven level is the amount of income at which a taxpayer begins to owe income taxes (i.e., the level at which tax liability turns from negative or zero to positive). Table 5 shows these levels for married and single-headed families with zero to three children. The smallest increase in the income level at which taxes begin to be owed is for singles with no children. These taxpayers began to owe taxes when income was $12,669 under prior law, but begin to owe at $13,419 under current law, an increase of $750. Under prior law, this income level was in part a result of the standard deduction and personal exemption (a combined $10,650 that was exempt from tax) and in part a result of a reduced EITC (the taxpayer's income resulted in a partially phased out credit). Under current law, a greater amount of income is exempt from taxâ$12,000 compared to $10,650âand the EITC is slightly reduced as a result of the new inflation adjustment. A married couple without children begins to pay taxes when their income is $24,000 under current law, compared with $21,300 under prior law, a $2,700 increase entirely driven by the changes in the personal exemptions and the standard deduction. For these taxpayers, under prior law their first $21,300 was exempt from tax as a result of the standard deduction and personal exemptions, and they were ineligible for the EITC at this income level because the credit was entirely phased out. Under current law, their first $24,000 is exempt from tax as a result of the increased standard deduction (and they remain ineligible for the EITC). The breakeven point for families with children is greater than the standard deduction (or under prior law, the standard deduction and personal exemptions) as a result of the EITC (although it is phased out from its maximum level) and the child credit. Although the increased standard deduction increases exempt levels and the additional $1,000 of the child credit is the equivalent of a $8,333 deduction for each child at the new tax bracket these income levels fall into ($1,000/.12), these income levels are mostly still in the earned income credit's phaseout range. Thus, although taxpayers gain from the increased deductions and child credits as income rises, they lose earned income tax credits, making the increase in the exemption level smaller. The benefit increases when the increased income levels tend to be largely out of the EITC's phaseout range (which is largely the case for families with three children). Lower-income families either receive a negligible benefit (for those without children) or a significant benefit (for those with children) because the new child credit is more generous than the prior personal exemption in terms of tax savings. As income rises, the child credit continues to contribute to lower taxes. It is not until marginal tax rates reach 24% (which occurs at $165,000 of taxable income for a joint return) that the increased child credit has the same value as the prior personal exemption in terms of tax savings. The moderate income levels also benefit from lower tax rates, as the 15% rate that applies to taxable income from $19,050 to $77,000 is reduced to 12%. Effects on Burdens at the Higher End of the Income Distribution At higher income levels, lower tax rates (which are quite large for taxable incomes of slightly more than $300,000 for joint returns and about half that amount for other returns) account for lower taxes, as shown in the tax rates in Table 2 , Table 3 , and Table 4 . As indicated in those tables, rates increase at somewhat higher levelsâparticularly for head of household and, to a lesser extent, single returnsâbefore declining again. For joint returns, the larger rate reductions occur between $156,150 and $316,000 of taxable income, as well at incomes of $480,050 to $600,000, while these reductions appear at lower income levels for head of household and single returns. Taxpayers are also less likely to pay the alternative minimum tax. Although regular tax rates are lowered, two factors reduce the AMT's scope. One is the significant increase in the AMT exemption. In addition, taxpayers at the upper end of the distribution have smaller itemized deductions for state and local taxes, which are a preference item for the AMT. Larger families also have a reduction in the difference between the regular and AMT base, as personal exemptions and standard deductions were part of that base under prior law, but child credits were not. Replacing personal exemptions for children with the child credit reduces the difference between the AMT and the regular base. At higher income levels, losing the full state and local tax deduction can increase tax burdens. The average state and local tax deduction is about 5% of income; evaluated at a 35% or 37% tax rate, the loss is equivalent to a two percentage point change in marginal tax rates. For high-income families with children, the increase in the phaseout levels lowers burdens, particularly as compared to the phaseout for the preexisting tax credit, although the benefit relative to income diminishes as income rises because of the fixed dollar amount. Overall data on distributional effects show significantly larger effects at high income levels, but some of the estimated relatively larger benefit to high-income taxpayers is due to reductions in the tax burden on capital income, including the pass-through deduction (which allows a 20% reduction in capital income for some earnings from unincorporated business) and the lower corporate tax rate, which benefits higher-income individuals, who receive most of the capital income. The effect of structural features at high income levels is ambiguous because the tax change raised tax rates for certain portions of taxable income and lowered them for others, and also capped the state and local tax deduction. Treatment of Families with Different Incomes This section examines the patterns of both vertical equity (how tax rates change as incomes rise) and horizontal equity (how tax rates change across different types of families with the same ability to pay using effective tax rate calculations [taxes as a percentage of income]). These rates can also be compared to those calculated for prior law in a previous CRS report. With respect to horizontal equity, this report uses an equivalency scale similar to the one used to calculate variations in poverty lines by family size. An equivalency scale estimates how much income families of different sizes and compositions need to achieve the same standard of living. In defining families that have the same ability to pay, CRS used an adjustment based on a research study that reviewed a broad range of equivalency studies and is similar to that used for adjusting official poverty levels for different family sizes. The scale has a smaller adjustment for children than for adults. The equivalency scale also accounts for the common use of resources (such as a kitchen or bathroom) in a family, which means increases in required income are not proportional to family size. Under this standard, a single person requires about 62% of the income of a married couple; a couple with four children requires about three times the income. Thus, compared to a married couple with no children with $20,000 of income, an equivalent single person would need slightly over $12,000, and a married couple with four children would need $60,000 to have the same standard of living. Provisions included in the calculations are the rate structure, the larger of the standard deduction or itemized deductions (the latter are assumed to be 12.7% of income, with 5.3% of income reflecting the state and local tax deduction included in the alternative minimum tax base, based on the latest tax data), personal exemptions, the earned income credit, the child credit, and the alternative minimum tax. Table 6 reports the 2018 effective tax rates for low- and middle-income taxpayers at different levels of income, for family sizes of up to seven individuals, and for the three basic types of returnsâsingle, joint, and head of household. Table 7 reports the tax rates for higher-income families. The column heading indicates the income level for married couples. Effective tax rates in each column reflect the effective tax rates of families with the same standard of living. The rates for different families should be compared by looking down the columns. For example, in Table 6 , a married couple with no children (the reference family) and $25,000 in income pays 0.4% of their income in taxes, but a married couple with one child with the same ability to pay (i.e., same standard of living at about $30,844 of income) receives a subsidy (i.e., on net they get a refund greater than taxes owed) of 12.1% of their income, whereas a single with an equivalent before-tax standard of living pays 2.2% of income in taxes. Overall, these effective tax rates indicate that low-income families with children receive significant benefits from the income tax, compared to those with similar abilities to pay but without children. These numbers assume that taxpayers (and their children) are eligible for both the child credit and the EITC. These are illustrative calculations that do not account for any other tax preferences and are designed to show how the tax law's basic structural, family-related features affect burdens. Across each family type, effective tax rates are progressive, increasing as income increases. Compared to prior law, tax rates change relatively little at the lowest income level due to the lack of change in the earned income credit and because the child credit increases by a limited amount (about $75) for many of the poorest families. As incomes rise into the lower-middle, middle-, and upper-middle-income levels, rates fall slightly for families without children, whereas families with children have significant reductions in effective tax rates due to the increase in the maximum child credit and the increases in the child credit phaseout levels. At the highest income levels, effects range from small rate cuts to small rate increases, which reflect the trade-off between the changes in rates and the reductions in itemized deductions. In contrast with prior law, none of the examples in these tables are subject to the AMT. These tables suggest that the pattern of tax burden by family size varies across the income scale, and reflects the interactions of the earned income credit, the child credit, and graduated rates, including phaseout effects. Moreover, the variation across families that have the same ability to pay is substantial. At low incomes, families with children, whether headed by a married couple or a single parent, are favored (i.e., receive significant subsidies from the tax code) because of the EITC and the child credit. The largest negative tax rates tend to accrue to returns with around two or three children, because the largest EITCs are available for three or more children and the child credits increase with the number of children. The rate increases (or rather, negative rates decline in absolute value) because larger families need more income, which may begin to phase them out of the EITC. As incomes rise, families with children are still favored, but the largest families have the largest subsidies or the smallest tax rates, because the child credit lowers taxes more for these families. Eventually, large families begin to be penalized because the value of the child credit and personal exemptions relative to income declines and larger families that require more income are pushed up through the rate brackets. As incomes reach very high levels, however, the rates converge as the tax approaches a flat tax. Note that itemized deductions are assumed to be a constant fraction of income, and thus a proportional exclusion, except when the $10,000 limit on state and local tax deductions is binding. Compared to prior law, the new system retains and expands the favorable treatment of families with children through most of the income spectrum. This effect occurs partly because the EITC rate is much lower for single taxpayers or two-member joint returns with no qualifying children than it is for families with children. Also, if one accepts the ability-to-pay standard, the EITC has an inappropriate adjustment for family size. To achieve equal tax rates based on the ability-to-pay standard, the amount on which the EITC applies and the income at which the phaseout begins should be tied to family size but the EITC credit rate should be the same for all families. Changing the rate, as was done in 1990 and retained when the EITC was expanded in 1993, does not accomplish equal treatment across families of different sizes, providing too much adjustment for some families and not enough for others. The child credit also contributes to the favorable treatment of families with children, including in the middle- and upper-middle-income levels, where it is not phased out. The greater refundability level, the increased size of the credit beyond that needed to replace the personal exemption at most income levels, and the significantly increased phaseout levels all make the child credit a significant factor in increasing the favorable treatment for families with children. Tax rates also differ for families without children (singles and married couples). At most income levels, childless singles have higher effective tax rates than childless married couples. This effect reflects efforts to eliminate marriage penalties, which in turn result in a tax penalty for single individuals. Other aspects of the tax system should also be considered, such as the child care credit and the treatment of married couples where only one individual works outside the home. These families are better off because the spouse not employed outside the home can perform services at home that result in cost savings, perform household tasks that increase leisure time for the rest of the family, or enjoy leisure. The value of this time, which is not counted in the measured transactions of the economy, is referred to as imputed income . This imputed income is not taxed, and it would probably be impractical to tax it. Nevertheless, the tax burden as a percentage of cash plus imputed income is lower for such a family. Marriage Penalties and Bonuses Because of the progressive rate structure, taxes can be affected by marriage, introducing either a penalty or a bonus when two individuals get married. Concerns about the marriage penalty reflect a reluctance to penalize marriage in a society that upholds such traditions. As the tax law shifted in the past to reduce the marriage penalty, it also expanded marriage bonuses. Studies of this issue indicate that the tax system favors marriage, conferring significant bonuses on married couples (or penalties on singles). The new law retains many of the elements that affect marriage penalties and bonuses, including wider tax brackets for joint returns (which eliminate marriage penalties and produce bonuses for those without children in the middle-income brackets), the more generous rate structure for head of household (which affects penalties and bonuses for families with children), and marriage penalties embedded in the alternative minimum tax. Under the new rate structure, the income levels at which marriage penalties are precluded because of the doubling of the brackets are higher. At the same time, the law also introduces a new potential source of a marriage penalty at high income levels by retaining the same dollar cap on state and local tax deductions for both joint and single returns. These choices have consequences not only for incentives but for equitable treatment of singles and married couples. As shown above in Table 6 and Table 7 , in the middle-income brackets, where the marriage penalty was largely eliminated, singles with the same ability to pay are subject to higher taxes than married couples. Singles benefit at lower income levels because their lower required incomes do not phase them out of the earned income credit. In contrast, lower-income married taxpayers are more likely to be subject to marriage penalties because of the EITC's structure. Under prior law, at very high incomes, married couples may have paid a larger share of their income because of marriage penalties that remained in the AMT and the upper brackets of the rate structure, but these effects do not appear in any of the current-law examples, in part because the AMT does not apply. This section explores the treatment of married couples and singles in an additional dimension by assuming that singles live together and share the same economies of scale that married couples do. These individuals could be roommates, but they could also be partners who differ from married couples only in that they are not legally married. Single individuals who live together in the same fashion as married couples have the same ability to pay with the same income. However, remaining single can alter their tax liability, causing it to either rise or fall, depending on the split of income between the two individuals. If one individual earns most of the income, tax burdens will be higher for two individuals who are not married than for a married couple with the same total income, because the standard deductions are smaller and the rate brackets narrower (up to the 35% tax rate, tax brackets for singles are half those of joint returns). If income is evenly split between the two individuals, there can be a benefit from remaining single. Married individuals have to combine their income, and the rate brackets for joint returns in the higher-income brackets, although wider than those for single individuals, are not twice as wide. At all levels they are not twice as wide as for heads of household. In addition, the earned income credit contains marriage penalties and bonuses. The marriage penalty or bonus might, in the context of the measures of household ability to pay, also be described as a singles bonus or penalty. In any case, in considering this issue's incentive and equity dimensions, these families' tax rates should be compared across family marital status at each income level. Table 8 and Table 9 show the average effective tax rates for married couples and for unmarried couples with the same combined income, both where income is evenly split and where all income is received by one person. In one case there is no child and in the other one child. These income splits represent the extremes of the marriage penalty and the marriage bonus. The same reference income classes and equivalency scales as in Table 6 and Table 7 are used. Note that uneven income splits in the case of a family with a child can yield different results depending on whether the individual with the income can claim the child and therefore receive the benefits of the head-of-household rate structure, the higher earned income credit, the dependency exemption, and the child credit. If not, that individual files as a single. The tables indicate that both marriage penalties and bonuses persist. In the case of families without children, however, penalties do not exist in the middle-income ranges, only bonuses. In this case, singles who live together and have uneven incomes would see their tax rates fall if they got married. Both bonuses and penalties exist at the lower income levels because of the earned income tax credit. If income is evenly split, the phaseout ranges are not reached as quickly for singles because each of the partners has only half the income. If all of the income is earned by one of the singles in the single partnership, phaseout of the credit still occurs and the individual also has a smaller standard deduction, and thus pays a higher tax. The smaller deductions and narrower rate brackets also cause the higher tax rates through the middle-income brackets. At very high income levels, marriage penalties can also occur. The penalty is due to not doubling the rate brackets after the 12% bracket. In addition, the dollar limit on the deduction of state and local taxes is the same for married couples and individual taxpayers, so that if two singles with high incomes and high state and local taxes marry, they can lose $10,000 in deductions. At the same time, taxpayers tend not to be subject to the AMT, which retains marriage penalties (by having an exemption for joint returns that is less than twice that for single returns). As compared to prior law, marriage penalties at higher income levels are mixed. In some cases penalties are lower, presumably due to the extension of the reach of the double width of rate brackets for singles versus joint returns, as well as lower tax rates in general and the AMT's more limited reach. In some cases penalties are higher due to the state and local tax deduction limit. Matters are more complex for families with children. Table 8 and Table 9 illustrate this effect for a family with one child. At the lowest income level, and a 50/50 split, one of the singles files a single return with a very small negative rate because of the small earned income credit for those without children, whereas the other claims a child and has a much higher negative tax rate than a married couple because there is no phaseout of benefits. The combination also involves a smaller child credit because it is not completely refundable. The combined result is a lower benefit than that of a married couple, and thus there is a marriage bonus. This income split eventually leads to a marriage penalty because of the favorable head-of-household standard deduction and rate structure, as well as the state and local tax deduction cap. With one of the pair earning all of the income, the results depend on whether the partner with the income can claim the child. If that person cannot, the tax burden is higher throughout the income scale, reflecting the loss of benefits from the child via credits and the rate structure. If the person with the income can claim the child (thus using the more favorable head-of-household schedule and receiving a child credit), joint returns are still favored (except at the lowest income levels), but not by nearly as much. Which of these last two assumptions seems more likely depends on the circumstances. When couples divorce, they typically move to different residences, and the most usual outcome is that the mother, who typically has lower earnings, has the child. According to the Census Bureau, 83% of children who live with one parent live with their mother. In that case, there would likely be a marriage bonus. If the couple divorce but live together, presumably the higher-income spouse would claim the child. However, if a couple never married and the child is only related to one parent, that person, more likely the mother and more likely to have low income, would claim the child. If such a couple married and had low incomes, they could obtain the earned income credit, and a study of low-income families indicates that this latter effect, the bonus, is the EITC's most common effect. Which circumstances are more characteristic of the economy? Note first that, although people refer to the marriage penalty for a particular family situation or the aggregate size of the marriage penalty, it is really not possible, in many cases, to determine the size of the penalty or bonus. The effect of the assignment of a child is demonstrated in Table 8 and Table 9 , but other features matter. Only when a married couple has only earned income, no dependent children, and no itemized deductions or other special characteristics, and only if it is assumed that their behavior would not have been different if their marital status had been different, can one actually measure the size of the marriage penalty or bonus. There is no way to know which of the partners would have custody of the children and therefore be eligible for head-of-household status and the accompanying personal exemptions and child credits. If the marriage bonus is viewed instead as a singles penalty on cohabitating partners, the share of the population affected is limited to less than 10% of households. About a third of those have children. Cohabitating partners are more likely than roommates to fully enjoy the consumption of joint goods that would equate them to married couples. Conclusion The 2017 tax revision continued, and in some cases expanded, the favorable treatment of families with children in the lower and middle income levels on an ability-to-pay basis. At the lowest incomes, this treatment was maintained largely due to the EITC's preexisting effects, although increasing the refundable child tax credit added to this favorable treatment. More favorable treatment was increased and extended up through the income classes because of the increase in the child tax credit amount and the increase in the income level at which the credit is phased out. At the highest income levels, rate changes tended to favor joint returns over singles and heads of household, largely due to the rate structure. As was the case with prior law, marriage bonuses occur through most income brackets, but penalties can exist at the lower end of the income distribution, particularly for families with children in which the lower income earner has custody of children, due to the earned income credit and the child credit. The rate structure continues to lead to a potential marriage penalty at high income levels. The 2017 revisions also introduced a new provision that could contribute to the marriage penalty at high incomes: the $10,000 limit on itemized deductions for state and local taxes, which is the same amount for married and single individuals.


Introduction The funding of public elementary and secondary schools in the United States involves a combination of local, state, and federal government revenues. State and local governments generally provide over 90% of the revenue available for public elementary and secondary education on an annual basis, with the federal government providing the remainder. As such, there is consistent congressional interest in understanding how the majority of available funds are provided to local educational agencies (LEAs) and, ultimately, to public schools. This report intends to provide context for consideration of the comparatively small but important role of the federal assistance programs in financing public education, discuss some of the ways that state and local finance policies and practices intersect with federal involvement, and explain selected key concepts in this field. The report provides a basic overview of the mechanisms used by states and LEAs to fund public education and an introduction to core school finance concepts. It begins with an examination of the sources of funding for public elementary and secondary education and how these funding sources vary by state and over time. It then considers how states and LEAs raise revenue for public education through different types of taxes, including property taxes. The report then focuses on state school finance programs, the varieties of policies under which states provide funds to LEAs, and the local units of government that administer public K-12 education. This includes an examination of the key concept of "equalization" in state school finance programs. School finance programs often incorporate state-level weighted student funding programs, under which additional funds are provided to LEAs for the education of students with certain high-cost needs (e.g., associated with low family income or student disabilities) or who are in high-cost educational programs (such as technical education). The next section of the report considers LEA programs to finance individual public schools. This is followed by a discussion of aspects of the largest federal K-12 education aid program, Title I-A of the Elementary and Secondary Education Act (ESEA), that incorporate a state school finance equity factor or weighted student funding components. In addition, a new ESEA Title I-E, as most recently comprehensively amended by the Every Student Succeeds Act (ESSA; P.L. 114-95 ), authorizes the Secretary of Education to provide participating LEAs with flexibility to consolidate eligible federal funds with state and local funding for individual public schools to create a "single school funding system based on weighted per-pupil allocations for low-income and otherwise disadvantaged students." The report concludes with a review of recent efforts to collect and report data on the level of expenditures per pupil at individual public schools within LEAs, a topic that has garnered increasing interest among policymakers in recent years. Percentage Shares of Revenues for Public Elementary and Secondary Education by Government Level The funding of public elementary and secondary schools in the United States involves a combination of local, state, and federal government revenues, in proportions that vary substantially both across and within states. Overall, a total of $678.4 billion in revenues was devoted to public elementary and secondary education in the 2015-16 school year (the latest year for which detailed data on revenues by source are available). State governments provided $318.6 billion (47.0%) of these revenues, local governments provided $303.8 billion (44.8%), and the federal government provided $56.0 billion (8.3%). Over the last several decades, the share of public elementary and secondary education revenues provided by state governments has increased, the share provided by local governments has decreased, and the federal share has varied within a range of 6.0% to 12.7%. The federal share peaked in the recessionary period of 2009-2011, and has declined thereafter. Table 1 provides the local, state, and federal shares for selected years over the 50-year period from 1965-1966 to 2015-2016. There is substantial variation among the states with respect to the shares of public elementary and secondary education revenues provided by state, local, and federal governments ( Table 2 ). For example, Hawaii, with a statewide system of public elementary and secondary education and no LEAs, provides virtually no local government revenues; almost 90% of funding comes from the state government. At the other end of this spectrum, the District of Columbia, which has no state government, provides approximately 90% of revenues from local sources. The other states fall between these two extremes of providing all or almost all of the nonfederal revenue from either state or local sources. Illinois has the lowest state share of revenues (24.1%) and the highest local share (67.4%) of the 50 states. Sources of State and Local Government Revenues Used for Public Elementary and Secondary Education Revenues are raised at the state and local levels to support public elementary and secondary education. Local revenues may be raised directly by an LEA itself (fiscally independent LEAs), or be raised and provided to an LEA by a general purpose unit of local government, such as a county or city (fiscally dependent LEAs). The primary source of local revenues for public elementary and secondary education is the property tax. This tax is primarily applied to real property (residences, commercial buildings, etc.), and in some cases to vehicles or boats. According to data from the U.S. Census Bureau for 2016, 72.0% of all local government tax revenues were from property taxes, 17.4% were from sales taxes, 6.0% were from individual and corporate income taxes, and the remaining 4.6% came from motor vehicle and other miscellaneous taxes. The property tax is an annual percentage of the assessed value of residential and commercial "real" property (i.e., buildings and land) and, in some localities, "personal" property (i.e., automobiles, other vehicles, and occasionally other items such as livestock). The property tax rate unit is often referred to as a "mill" or one-thousandth of the assessed value of the property. Because almost three-quarters of all local government revenues come from property taxes, variations in the value of such real or personal property relative to the number of school-age children in a locality is usually the primary cause of local variations in capacity to raise revenues per pupil for public elementary and secondary education. Beyond differences in taxable property per pupil, localities in many states are able to select their local property tax rate, at least within a limited range, and may choose to tax themselves at higher rates than other localities in the same state. State revenues for public elementary and secondary education are raised from a variety of sources, primarily personal and corporate income and retail sales taxes, "excise" taxes such as those on tobacco products and alcoholic beverages, plus lotteries in several states. According to data from the U.S. Census Bureau for 2016, 47.8% of all state government tax revenues were derived from sales taxes, 42.2% were from individual and corporate income taxes, 1.7% were from property taxes, and the remaining 8.3% came from motor vehicle and other miscellaneous taxes. State School Finance Programs As depicted in Table 2 , all states (but not the District of Columbia) provide a share of the total revenues available for public elementary and secondary education. This state share varies widely, from approximately 25% in Illinois to almost 90% in Hawaii and Vermont. Starting in the early 20 th century, all states began to establish public elementary and secondary finance programs in order to diminish somewhat the high degree of inequality in revenues per pupil that would result if funding were based only on local taxable resources and the willingness of local citizens to tax themselves. The primary policies under which states allocate these revenues among their LEAs have been catalogued and categorized by school finance analysts on several occasions in recent decades. For several years, the U.S. Department of Education's National Center for Education Statistics (NCES) financed and supported a joint effort with the American Education Finance Association and the National Education Association to compile detailed information on the characteristics of state school finance programs. However, the most recent of these publications was released in 2001, was based on the 1998-1999 school year, and has not been updated. Since the publication of the last NCES catalog of state school finance programs, individual education policy analysts have coordinated efforts to update at least some of the information. For example, annual updates of key school finance policies for each state have recently been published by Professor Deborah Verstegen of the University of Nevada at Reno. Note that while those organizing and compiling the surveys of state school finance programs provide guidance intended to elicit consistent responses from the states, responses are generally prepared by different individuals in each state who may not describe various policies using the same terminology or focus. The programs through which state funds are provided to LEAs for public elementary and secondary education have traditionally been categorized by those involved in the compilations discussed above and other education finance analysts into five types of programs: (1) Foundation Programs, (2) Full State Funding Programs, (3) Flat Grants, (4) District Power Equalizing, and (5) Categorical Grants. In many cases, states often have elements of two or more of these types of programs in their school finance policies. Precise counts of how many states have finance programs in each of these categories varyâdue to differences in the time at which analyses are conducted combined with the evolution of state policies over time, as well as variations of interpretation by individuals in each state responding to state policy surveys, among other factors. Nevertheless, there is general agreement that the first of these types of state school finance programs, typically referred to as Foundation Programs, is much more common than the other four types, and may be found to some degree in as many as 80% of the states. Foundation Programs Foundation Programs began to come into existence in the 1930s. A typical Foundation Program includes required local tax effort, state equalization aid, and local leeway funds. Under a Foundation Program, the state establishes an annual target level of funding per pupil applicable to all of the state's LEAs. As is discussed further below, the pupil count may be undifferentiated, or may be weighted to take into consideration a variety of pupil characteristics (such as grade level, type of educational program, special educational needs such as disabilities, low family income, or English Learner (EL) status) and sometimes estimated differences in the costs of providing education services in different localities. The funding target is most often (and historically) conceptualized as a "minimum" level of funding per pupil, or in some cases more recently as a level of funding necessary to provide an "adequate" educational program. In any case, Foundation Programs are designed to guarantee a "base" level of funding, not to achieve absolute fiscal equality among the LEAs of a state. The state target level of funding per pupil is likely to be influenced by budgetary and other political considerations. The state pays each LEA a percentage of this assumed total that varies inversely with local taxable property wealth per pupil, or some other measure of local capacity to raise revenues. The state percentage is higher for LEAs with low fiscal capacity per pupil, and lower for those with high fiscal capacity per pupil. Foundation Programs vary in their provisions regarding local tax rates. In most states with Foundation Programs, the state specifies at least a minimum rate at which localities must tax themselves. In other states, a local tax rate is assumed in the calculation of the Foundation Program's state share, based on the difference between the assumed total expenditure level and the state percentage of this, but localities are not actually required to tax themselves at this rate. In addition, LEAs might be allowed to raise local tax rates beyond the level required under state law, at least to a limited extent, but will not receive any state supplementation of the additional funds raised. These are commonly referred to as "leeway funds," as LEAs have the leeway to choose a local tax rate higher than the standard level established under state law. Thus, a Foundation Program equalizes funding per pupil (however "pupil" may be defined) but only up to a target level, with LEAs often free to raise additional funds (not matched by the state) if they wish. Many states also combine Foundation Programs with one or more of the additional types of programs discussed below (except for Full State Funding) in a tiered or layered funding system. Full State Funding Programs Full State Funding is only found in Hawaii. Under such a policy there are virtually no local revenues. States such as Vermont and New Mexico come close to this category through programs that involve very limited local funding sources. Flat Grants Flat Grants are historically important, having been a dominant form of state aid in the early part of the 20 th century. While the role of Flat Grants as the primary form of state aid for public elementary and secondary education has almost disappeared, they are included as a supplement to Foundation Programs or other programs in a number of states. As the name implies, this type of program provides grants of an equal amount per pupil to all LEAs in a state, regardless of the level of taxable property wealth in those localities or specific pupil characteristics. District Power Equalizing Usually called District Power Equalizing , this program type focuses specifically on equalizing the ability of different LEAs in a state to raise revenues from their available taxable property. These policies establish a minimum level of revenue that may be raised for each unit of local tax rate. For example, a state policy might set a standard that at least $1,000 per enrolled student be generated for each 5 mills of local property tax rate. If a locality cannot raise the standard level of funding per unit of tax rate, due to insufficient taxable property in the LEA, then state funds would be provided to make up the difference (often limited to a specified maximum local tax rate). In other words, this program type provides for a minimum guaranteed tax base for public elementary and secondary education in the state. It is often said that District Power Equalizing focuses on equity for taxpayers, while frequently allowing substantial variation in local tax rates and thereby in total state and local funding per pupil, depending on local preferences. Reportedly, fewer states than in the past currently rely primarily on this type of program, though several still incorporate it as part of a multifaceted state school finance system (i.e., in conjunction with Foundation Programs, etc.). Categorical Grants While apparently no state relies totally on Categorical Grants, many states use them in combination with the program types discussed above. Categorical Grants provide funding based on the number of students with specific needs (students with disabilities or limited English proficiency, from low-income families, etc.) or in particular educational programs (career and technical programs, etc.). States may allow such funding to be treated as general aid by LEAs, or they may require that funds be used to serve the specific students upon whom the grants are based. At the federal level, the largest federal programs of aid to public elementary and secondary education are Categorical Grants. These include ESEA Title I, Part A, under which funds for the education of disadvantaged children are allocated primarily on the basis of estimates of the number of school-age children in low-income families. Categorization of State Finance Programs As mentioned above, it is difficult to place all states neatly into one of the five aforementioned categories based on current and consistent data and terminology. Nevertheless, one relatively recent effort to do so categorized 37 states as relying primarily on Foundation Programs, 1 state as using Full State Funding, 1 state as relying primarily on Flat Grants, 2 states as relying primarily on District Power Equalizing, and the remaining 9 states as employing combinations of these types of state school finance programs. Another effort to place states in school finance program groups was published in 2003, and was based on the NCES compilation of state programs for 1998-1999. This analysis placed 35 states in the Foundation Program category, 1 state in the Full State Funding category, 2 states in the Flat Grants category, and 6 states in the District Power Equalizing category, with the remaining 6 states using combinations of these types of programs. A more recent effort to categorize state school finance programs found that "approximately 80%" of all states use Foundation Programs, 1 provides Full State Funding (though a few others approach this), 1 relies primarily on Flat Grants, and 2 rely primarily on District Power Equalizing, but that increasingly many states combine two or more of these program types in a tiered funding system. Finally, in August 2019, the Education Commission of the States (ECS) published data indicating that 36 states rely primarily on a Foundation model of K-12 education finance, while 8 states rely primarily on a "Resource Allocation" model, 3 states rely on a hybrid of Foundation and Resource Allocation models, 1 state relies on a hybrid of a Foundation Model and a Hold Harmless policy, and the final 2 states rely on "Other" models of school finance. School Finance "Equalization" A goal of all of the various types of state school finance programs is to provide at least some limited degree of "equalization" of spending and resources and/or local ability to raise funds for public elementary and secondary education across all of the LEAs in the state. School finance equalization would seem to imply "equal spending per pupil" among a state's LEAs. However, the meanings of both "equal" and "per pupil" may vary widely. Relatively few observers advocate absolute equality of dollars spent on behalf of every pupil in the state. Almost all state school finance programs allow for some level of spending differences based on local willingness to pay for public elementary and secondary education, differences in the costs of educating various categories of high-need pupils, or differences in the costs of providing education services in different geographic areas. State school finance programs frequently account for certain types of pupils whose education imposes higher than average costs on LEAs, which might include pupils with disabilities, from low-income families and/or living in areas with high concentrations of poverty, with limited proficiency in the English language, or living in sparsely populated areas. Analysts of school finance programs sometimes use the term "horizontal equity" to refer to equal funding on behalf of similar pupils in different LEAs across a state, and "vertical equity" to refer to different levels of funding on behalf of pupils with different levels of need. If a state school finance program provides more funds on behalf of high-cost pupils than other pupils in an effort to provide vertical equity, and if the distribution of these pupils is uneven across the state's LEAs, then the state's school finance system might be considered by many analysts to be equalized yet have significant differences in spending per enrolled pupil overall. Regardless of how one adjusts for the distribution of different types of pupils, there are two basic ways in which school finance equalization has been defined. By far the most common method is based on equalization of the level of revenues or expenditures per pupil, however "pupil" might be defined. The other, somewhat less common, method focuses on equalizing the amount of funds per pupil that each LEA could raise per unit of local tax rate. The first method would equalize actual amounts of funds available, while the second would equalize local ability to raise revenues. These two basic concepts of equalization are reflected in many of the state school finance programs discussed above. Foundation Programs often incorporate provisions to provide higher amounts per pupil on behalf of one or more categories of high-need pupils, and Categorical Grants often provide increased funds to serve specific high-need pupil groups. In contrast, District Power Equalizing programs focus on equalizing the funds that could be raised per unit of local tax rate. Examples of Relevant School Finance Court Cases Beginning in the early 1970s, equalization of resources for public elementary and secondary education across the LEAs in each state has been the topic of a variety of state and, to a much lesser extent, federal court cases. In 1971, in the case of Serrano v. Priest , the California State Supreme Court ruled that the quality of a child's education should not depend on the taxable property wealth of the locality in which her or his family resides. This was the first of an ongoing series of cases brought in state courts, based on state statutory law and state constitutions. At the federal level, the U.S. Supreme Court decided in 1973, in the case of San Antonio Independent School District v. Rodriguez, that differences in local expenditures per pupil within a state did not violate the U.S. Constitution, as long as these differences were the result of state actions intended to meet a public purpose, such as increased local control of education that might accompany substantial reliance on local revenue sources. Following this decision, the issue of school finance equalization has been addressed primarily in state courts, based on state constitutional provisions, rather than federal courts. Weighted Student Funding in State School Finance Programs In the discussion of state school finance programs above, it was stated that such programs often establish target levels of funding "per pupil." The "pupil" counts involved in these programs may simply be based on total student enrollment as of some point in time, or they may be a "weighted" count of students, taking into account variations in a number of categoriesâspecial pupil needs (e.g., disabilities, low family income, limited proficiency in English), grade levels, specific educational programs (e.g., career and technical education), or geographic considerations (e.g., student population sparsity or local variation in costs of providing education). As noted earlier, existing surveys of state school finance programs, which rely on different respondents in each state, vary in the level of detail and use of terminology in describing the programs in each state. Nevertheless, a review of the individual state entries in a recent survey is an instructive indication of the extent to which weighted student counts are used to determine funding levels under current state programs. It shows that at least 32 states used some degree of weighting of the pupil counts used to calculate state aid to LEAs. Most of these states have policies that assign numeric weights to different categories of pupils, while in other states the school finance program specifies different target dollar amounts for specific categories of pupils, which is mathematically equivalent to assigning weights. Another study of the extent to which states use pupil weighting in their school finance programs was published in August 2019 by ECS. These data include fewer categories of pupil weights in state school finance programs than the aforementioned study. Overall, based on this study, 42 states, the District of Columbia, and Puerto Rico used weights for at least one pupil category. The number of states reported in these two recent studies as applying weights to different pupil categories in their school finance programs is summarized in Table 3 . Pupil weighting categories for which no data are provided in the third column of this table were not included in the ECS study. It should be noted that the Verstegen study was based on survey data collected from state departments of education on state school finance policies that were in effect during the 2017-2018 school year. The study did not include the District of Columbia or Puerto Rico. The ECS study relied on relevant state statutory language, regulations, and guidance that was in effect as of July 1, 2019, in the 50 states, the District of Columbia, and Puerto Rico. As detailed in Table 3 , according to both studies states most often add funding weights for pupils who are English learners, have low family income, or have disabilities. States often employ multiple weights for pupils with specific types of disabilities (i.e., higher weights are assigned as the level of disability increases), and sometimes increase low family income weights for pupils in LEAs or schools with high concentrations of low-income pupils (i.e., higher weights are assigned as the concentration of children from low-income families increases). States that do not employ pupil weights in their primary funding formulas sometimes provide extra funding for high-need pupils through separate Categorical Grants. Many states also adjust pupil weights for those in selected grade levels, geographic areas, or programs. Weights are often higher for pupils in the earliest grades or in grades 9-12, though policies vary widely, and a few states prioritize other grade levels such as 7-9. The population sparsity weights recognize the diseconomies of scale in areas with especially small LEAs or schools. The career and technical education weights recognize the extra costs of these types of programs. For example, the state of Oregon bases allocations under its primary school finance formula on a weighted count of students in average daily membership (enrollment) in each of the state's LEAs, which is referred to as the average daily membership weighted (ADMw) count. This policy applies additional weights to counts of students who are English learners; students who are pregnant or are in parenting programs; students with disabilities; students in low-income families; foster, neglected, or delinquent students; and students in remote or small schools. Another source of information on the extent to which weighted student funding and related concepts are employed in state school finance programs is the Edunomics Lab at Georgetown University. This organization compiles information on the share of state elementary and secondary education funds that various states allocate via primary state aid formulas incorporating weighted student funding, which it also refers to as the "student based allocation." The Edunomics Lab has reported that 20 states allocated 33% or more of their state aid funds through a weighted student funding formula during at least some part of the period from FY2014 to FY2019. LEA Programs to Finance Public Schools As seen above, the concept of pupil weighting is often applied in determining funding levels for LEAs under state school finance programs. After state funds reach LEAs, they are combined with locally raised funds to provide educational resources to students in individual schools. LEAs may also use weighted student funding formulas to allocate funds to individual public schools, but more often they use other funding strategies. This section of the report provides an overview of conventional intra-LEA budgeting policies and the use of weighted student funding policies by LEAs. Conventional Intra-LEA Budgeting Policies Under the traditional, and still most common, method of allocating resources within LEAs, there are no specific budgets for individual schools. Available state and local funds are managed centrally, by LEA staff, and various resourcesâfacilities, teachers, support staff, school administrators, instructional equipment, etc.âare assigned to individual schools. In this process, LEA staff typically apply LEA-wide standards such as pupil-teacher ratios or numbers of various categories of administrative and support staff to schools of specific enrollment sizes and grade levels. While levels of expenditures per pupil may be determined for individual schools under these budgetary systems, they are calculated "after the fact," based on whatever staff and other resources have been assigned to the school. And while standard ratios of pupils per teacher or other resource measures may be applied LEA-wide in these situations, substantial variations in the amounts actually spent on teachers and other resources in each school can result from systematic variations in teacher seniority and other factors. These variations might be masked by local policies to apply average salaries, rather than specific actual salaries, in school accounting systems. Further, under traditional school budgeting policies there is little or no immediate or direct adjustment of resources or spending when students transfer from one school to another. Weighted Student Funding Concept Applied to Intra-LEA Budgeting forÂ Schools In contrast to traditional, fully centralized budgeting and accounting policies for public schools within LEAs, a number of LEAs have in recent years applied the weighted student funding concept to developing and implementing individual school budgets. These policies are not currently applied to any federal program funds and are applied only to a portion of the state and local revenues received by these LEAs, as they continue to centrally administer and budget for various activities such as school facility construction, operations and maintenance, employee benefits, transportation, food services, and many administrative functions . The LEAs develop school budgets for teachers, support staff, and at least some other resources on the basis of weighted counts of the students currently enrolled in each school, and adjust these budgets when students transfer from one school to another. CRS is not aware of any comprehensive listing of all the LEAs that are currently implementing weighted student funding policies for intra-LEA allocations to schools. However, the Edunomics Lab compiles data on such LEAs, and it has identified several relatively large urban LEAs that allocated between 21% and 89% of their funds to schools through weighted student funding formulas in FY2017 and/or FY2018. These are Baltimore City, Boston, Chicago, Cleveland, Denver, Douglas County (Colorado), Houston, Indianapolis, Jefferson County (Colorado), Metro Nashville, Milwaukee, New York City, Newark, Norwalk (Connecticut), Orleans Parish, Prince George's County (Maryland), and San Francisco. This is not an exhaustive list of LEAs employing weighted student funding for schools, especially with respect to smaller LEAs, but it may be considered to be illustrative of the current extent of the practice. For example, the Boston public school system allocates funds to individual public schools on the basis of weighted student counts that vary by grade level, pupils with disabilities (multiple categories), ELs, pupils with low family income, and pupils in career and technical education programs. According to Boston Public Schools, the use of weighted student funding promotes the school system's goals of equity, empowerment for school-level staff, innovation by individual schools, accountability, and transparency regarding the level of funding available to each school. Advocates for weighted student funding policies within LEAs argue that they promote equity by explicitly connecting funding levels with the distribution of high-need pupils, as defined by the LEA, resulting in higher state and local funding in schools with higher proportions of these pupils. Advocates also argue that transparency is enhanced when school budgets reflect funds actually spent at each individual school. They further argue that weighted student funding of schools enhances school choice and school-based management practices, where applicable, and promotes flexibility in resource use by schools. However, the use of weighted student funding within LEAs is a relatively new practice in most cases, and comprehensive research on its effects is not yet available. Use of Equalization Strategies and Weighted Student Funding in ESEA The ESEA includes one program and one secretarial authority that incorporate elements of the equalization and weighted student funding strategies used by states and LEAs. The Title I-A program authorizes federal aid to LEAs for the education of disadvantaged children. Title I-A grants provide supplementary educational and related services to low-achieving and other students attending elementary and secondary schools with relatively high concentrations of students from low-income families. It is also the largest ESEA program ($15.9 billion), accounting for over 60% of all ESEA funds in FY2019 ($25.2 billion). The formulas used to determine grants to LEAs under Title I-A include both an equity component and weighted student funding elements. Title I-E provides the Secretary of Education (the Secretary) with authority to provide LEAs with flexibility to consolidate eligible federal funds with state and local funding to create a "single school funding system based on weighted per-pupil allocations for low-income and otherwise disadvantaged students." Both ESEA Title I-A and Title I-E are discussed below. Title I-A Under the ESEA Title I-A program, different portions of each year's appropriation for grants to LEAs are allocated under one of four different formulasâBasic Grant, Concentration Grant, Targeted Grant, and Education Finance Incentive Grant (EFIG). For each formula, a maximum grant is calculated by multiplying a "formula child count," consisting primarily of estimated numbers of school-age children in low-income families, by an "expenditure factor" based on state average per pupil expenditures for public K-12 education. For some formulas, additional factors are multiplied by the formula child count and expenditure factor. These maximum grants are then reduced to equal the level of available appropriations for each formula, taking into account a variety of state and LEA minimum grant and "hold harmless" provisions. The formula child population used to determine Title I-A grants for the 50 states, the District of Columbia, and Puerto Rico consists of children ages 5 to 17 (1) in low-income families, according to estimates for LEAs from the Census Bureau's Small Area Income and Poverty Estimates (SAIPE) program; (2) in institutions for neglected or delinquent children or in foster homes; and (3) in families receiving Temporary Assistance for Needy Families (TANF) payments in excess of the poverty income level for a family of four persons. Children in low-income families account for about 97% of the total formula child count, so the other formula population categories are of limited significance overall. Each element of the formula child count is updated annually. In general, LEAs must have a minimum number of formula children and/or a minimum formula child rate to be eligible to receive a grant under a specific Title I-A formula. Among the four Title I-A formulas, the EFIG formula contains an equity factor as well as a weighted student funding component. The Targeted Grant formula also contains a weighted student funding component. Both types of funding factors are discussed below. Equity Factor Under the EFIG formula, a measure of the equity of state school finance programs plays a role in the determination of the level of funds each state receives. More specifically, Title I-A grants under the EFIG formula are made to states on the basis of their formula children, an expenditure factor based on state average per pupil expenditures for public elementary and secondary education, an effort factor based on average per pupil expenditure for public elementary and secondary education relative to personal income per capita for each state compared to the nation as a whole, and an equity factor based on variations in average per pupil expenditure among the LEAs in each state. Thus, state total grants under the EFIG formula are based on each state's share, compared to the national total, of a population factor multiplied by an expenditure factor, an effort factor, and an equity factor, adjusted by a state minimum grant provision. The equity factor is based on a measure of the average disparity in expenditures per pupil among the LEAs of a state called the coefficient of variation (CV). The CV is expressed as a decimal proportion of the state average per pupil expenditure. In the CV calculations for this formula, an extra weight (1.4 vs. 1.0) is applied to estimated counts of children from low-income families. The effect is that grants would be maximized for a state where LEA-level expenditures per pupil from a low-income family are 40% higher than expenditures per pupil from a non-low-income family. Typical state equity factors range from 0.00 (for the single-LEA jurisdictions of Hawaii, Puerto Rico, and the District of Columbia, where by definition there is no variation among LEAs), to approximately 0.30 for a state with high levels of variation in expenditures per pupil among its LEAs. The equity factors for most states fall into the 0.10-0.20 range. In calculating grants, the equity factor is subtracted from 1.30 to determine a multiplier to be used in calculating state grants. As a result, the lower a state's expenditure disparities among its LEAs are, the lower its CV and equity factor will be, and the higher its multiplier and its grant under the EFIG formula will be. Conversely, the greater a state's expenditure disparities among its LEAs are, the higher its CV and equity factor will be, and the lower its multiplier and its grant under the EFIG formula will be. Of the $15.9 billion appropriated for Title I-A for FY2019, EFIG received $4.0 billion (25.3% of total Title I-A funding) for the 2019-2020 school year. Weighted Student Funding The EFIG formula also employs a weighted student funding concept in the allocation of grants to states. In the calculation of the formula's equity factor, state and local funds per pupil are calculated using a greater weight for students from low-income families (1.4) than for other students (1.0). As a result, a state where greater state and local funds are available for the education of students from low-income families than for other pupils would have a numerically low equity factor and ultimately higher grants under the EFIG formula. The weighted student concept is also employed in the Title I-A Targeted Grant formula and in an additional way in the intrastate allocation of EFIG formula funds to LEAs within states. As with the EFIG formula, the Targeted Grant formula received $4.0 billion (25.3% of total Title I-A funding) for the 2019-20 school year. Under the Targeted Grant formula, as well as the intrastate allocation of funds under the EFIG formula, formula child counts and formula child rates are assigned weights, with higher weights applied as the formula child count or rate increases in an LEA. The higher the formula child count or rate is, the higher the grants per formula child an LEA would receive will be. Under the Targeted Grant formula, one set of weighting factors is applied to all LEAs based on formula child counts and one set is applied to all LEAs based on formula child rates. In contrast, under the EFIG formula three sets of weights are used for weighting formula child counts and three sets are used for the weighting of formula child rates. The set of weights used under the EFIG formula depends on the value of each state's equity factor (described above), with lower weights applied to LEA grant calculations in states that have a lower equity factor (i.e., relatively low disparities in expenditures per pupil among the state's LEAs) and higher weights applied to LEA grant calculations in states that have a higher equity factor (i.e., relatively high disparities in expenditures per pupil among the state's LEAs). In determining LEA grants under both the Targeted and EFIG formulas, the higher of the two weighted student counts (one calculated based on formula child counts and one calculated based on formula child weights) is used in calculating grants for each LEA. Title I-E The Title I-E authority allows the Secretary to enter into a demonstration agreement with LEAs that are using or agree to implement weighted student funding systems to establish budgets for, and allocate funds to, individual public schools. In order to enter into a local flexibility demonstration agreement under the Title I-E authority, each LEA must have a weighted student funding system that meets specific requirements. The LEA's system must use weights or allocation amounts that provide "substantially more funding" than is allocated to other students to English learners (ELs), students from low-income families, and students with any other characteristic related to educational disadvantage that is selected by the LEA. The system must also ensure that each high-poverty school receives in the first year of the demonstration agreement more per-pupil funding for low-income students than was received for low-income students from federal, state, and local sources in the year prior to entering into the agreement, and at least as much per-pupil funding for ELs as was received for ELs from federal, state, and local sources in the year prior to entering into the agreement. The weighted student funding system must include all school-level actual personnel expenditures for instructional staff, including staff salary differentials for years of employment, and actual nonpersonnel expenditures in the LEA's calculation of eligible federal funds and state and local funds to be allocated to the school level. It must also allocate a "significant portion of funds," including state and local funds and eligible federal funds, to the school level based on the number of students in a school and an LEA-developed formula that determines per-pupil weighted amounts. In addition, the percentage of state and local funds and eligible federal funds allocated through the LEA's weighted student funding system must be sufficient to carry out the purposes and requirements of the demonstration agreement. Eligible federal funds that may be consolidated in an LEA's weighted student funding system include, for example, those available under ESEA Title I-A (Education for the Disadvantaged), Supporting Effective Instruction (Title II-A), English Language Acquisition (Title III-A), and Student Support and Academic Enrichment (Title IV-A). No non-ESEA funds (e.g., funds available under the Individuals with Disabilities Education Act or the Perkins Career and Technical Education Act) are considered eligible funds for purposes of consolidation. Once eligible federal funds are consolidated in a participating LEA's weighted student funding system, these funds are treated the same way as the state and local funds. There are no required uses associated with the eligible federal funds provided that the expenditures are "reasonable and necessary" and the purposes of the eligible federal programs for which funds have been consolidated are met. Recent Efforts to Collect and Publish School-Level Financial Data A separate development relevant to the adoption of weighted student funding by some LEAs has been increasing interest in the collection and reporting of school-level finance data for public schools. While historically there have not been comprehensive state or federal efforts to calculate or report on specific budgets or expenditure levels for individual public schools, federal efforts to require and support the reporting of such information have expanded rapidly in recent years. The availability of school-level financial data, based on standard concepts applied consistently nationwide, could be especially helpful in the administration of a key fiscal accountability requirement of the ESEA Title I-A program, as discussed below. Such data could also inform state and local level consideration of equity among schools and groups of students, and increase transparency regarding budgeting and financial decisions by LEAs. One factor that may help explain this increasing attention is the "comparability" requirement associated with the ESEA Title I-A program. This is a requirement that services provided with state and local funds in schools participating in Title I-A must be comparable to those in non-Title I-A schools within the same LEA. If all of an LEA's schools participate in Title I-A, then services funded from state and local revenues must be "substantially comparable" in each school within the LEA. The Title I-A comparability requirement is intended to ensure that state and local funds are used to provide a comparable level of services in Title I-A schools compared with non-Title I-A schools prior to the receipt of Title I-A funds. Comparability is measured only with respect to the public schools within the same LEA, not statewide. It is designed to ensure that federal Title I-A funds provide a net increase in funding for Title I-A schools compared to non-Title I-A schools, and do not simply replace state and local funds that would, in the absence of Title I-A, be provided to the Title I-A schools. In demonstrating comparability, LEAs are prohibited from using staff salary differentials for years of employment in determining expenditures per pupil from state and local funds or instructional salaries per pupil from state and local funds. That is, actual staff salaries are not used in comparability determinations. In recent years, there has been renewed attention to the extent to which the comparability requirement is being enforced, and to the nature and quality of school-level expenditure data used to determine compliance. More broadly, a number of other federal requirements and research efforts have reflected this increased interest in school-level finance data collection and reporting. The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 , Title VIII) included a one-time requirement for states to compile and report expenditures for all public schools for the 2008-2009 school year. States were required to report total personnel salaries for all school-level instructional and support staff; salaries specifically for instructional staff; salaries specifically for teachers; and nonpersonnel expenditures, if available. ED provided guidelines on the specific types of expenditures that states and LEAs should include in their reports. States and LEAs were asked to report school-level expenditures from state and local funds only, and to exclude expenditures for special education, adult education, school nutrition programs, summer school, preschool, and employee benefits. All expenditure data was to be reported based on actual expenditures, including those for staff salaries. A study of the implementation of the Title I-A comparability requirement that was based on the data collection required by the ARRA determined that within LEAs that had both Title I-A and non-Title I-A schools, "more than 40 percent of Title I schools had lower personnel expenditures per pupil than did non-Title I schools at the same grade level." For example, at the elementary school level 46% of Title I-A schools had state and local personnel expenditures per pupil that were below the average for non-Title I-A schools in the same LEA, while 54% exceeded the average for non-Title I-A schools in the same district. Title I-A middle schools and high schools were marginally less likely to have below-average per-pupil personnel expenditures (42% and 45%, respectively) compared to non-Title I-A schools in the same LEA. Across all levels of elementary and secondary education, 48% of Title I-A schools were not receiving the same level of per-pupil state and local personnel expenditures as non-Title I-A schools in the same LEA. While this does not represent a violation of the Title I-A comparability requirements, which are not based on actual personnel expenditures, it is an indication that a sizable group of Title I-A schools may not actually be as equally resourced as non-Title I-A schools prior to the receipt of Title I-A funds. In discussing this study, ED stated that, "[t]raditional district allocation methods have been shown to create significant funding disparities between Title I and non-Title I schools." Separately, ED's Office for Civil Rights began to collect selected school-level expenditure data starting with the 2009-2010 school year. These data are captured every second year as part of the ongoing Civil Rights Data Collection, and include total personnel salaries; salaries specifically for teachers, instructional aides, support services staff, and school administrators; and nonpersonnel expenditures. All expenditure data must be based on actual expenditures. Unlike data collected under the ARRA (discussed above) and ESEA (discussed below) requirements, these data are collected directly from schools and LEAs, not states. In spring 2014, the Office of Management and Budget (OMB) and ED's Office of Planning, Evaluation, and Policy Development (OPEPD) requested that ED's National Center for Education Statistics (NCES) develop a school-level finance data collection, as such a collection had not been developed on a comprehensive, annual basis. In response, NCES launched pilot efforts to expand ongoing surveys of state and LEA finances to include school-level financial data as well. Beginning with the 2013-2014 school year, NCES conducted a pilot School-Level Finance Survey (SLFS) to evaluate the feasibility of collecting school-level finance data in conjunction with the School District Finance Survey and National Public Education Financial Survey for states and LEAs, jointly conducted by NCES and the Census Bureau. Twelve states participated in this pilot survey for the 2013-2014 school year, and 17 states for 2014-2015 (although only 15 states provided data deemed to be usable by NCES). Based on pilot survey results for the 2014-15 school year, NCES determined that (1) approximately one-half of the participating states were able to report complete personnel and/or nonpersonnel data for at least 95% of their public schools, (2) SLFS data are generally consistent with data reported in other school finance surveys, (3) the development of standardized protocols "enhances the efficiency of reporting school-level finance data, (4) there remain "numerous inherent challenges in collecting school-level finance data," (5) and, nevertheless, "the feasibility of collecting and reporting school-level finance data of reasonable quality is relatively high." A major concern regarding school-level expenditure surveys is achieving consistency among the states on what kinds on expenditures to include or exclude. The SLFS currently includes 15 unique expenditure items covering a wide variety of personnel expenditures (6 items), including salaries, as well as nonpersonnel expenditures (9 items), such as educational technology. Excluded from these items are employee benefits and services provided centrally by LEAs such as transportation, capital spending, food services, central administration, and building operations and maintenance. Data for each of the 15 expenditure items were collected two ways: (1) without additional exclusions (other than the aforementioned exclusions), and (2) with additional exclusions for expenditures paid from most federal funds, expenditures for prekindergarten, and expenditures for special education. Beginning with the 2015-2016 school year, the SLFS was opened to all states on a voluntary basis. Beginning with the 2017-2018 school year data collection, NCES began collecting complete operational expenditure data. NCES noted that "[c]omplete, accurate, and comparable school-level finance data across states will take time and effort to achieve." However, NCES also noted that recent ESEA school-level finance reporting requirements (discussed below), further development of standardized internal protocols for school-level finance accounting, and continued SEA collaboration with NCES and the Census Bureau on the SLFS data collection should result in improved school-level finance data. Further, as mentioned above, the ESSA amended ESEA Title I-A to require participating states to include in school report cards data on expenditures at each public school. These report cards are to include "the per-pupil expenditures of Federal, State, and local funds, including actual personnel expenditures and actual nonpersonnel expenditures of Federal, State, and local funds, disaggregated by source of funds, for each local educational agency and each school in the State for the preceding fiscal year" (Section 1111(h)(1)(C)(x)). States are currently beginning to report expenditure data in response to this requirement. Appendix. Glossary of Acronyms ARRA: American Recovery and Reinvestment Act ( P.L. 111-5 ) CV: Coefficient of variation ED: U.S. Department of Education EFIG: Education Finance Incentive Grant EL: English Learner ESEA: Elementary and Secondary Education Act ESSA: Every Student Succeeds Act ( P.L. 114-95 ) LEA: Local educational agency NCES: National Center for Education Statistics (ED) OMB: Office of Management and Budget OPEPD: Office of Planning, Evaluation, and Policy Development (ED) SAIPE: Small Area Income and Poverty Estimates SEA: State educational agency SLFS: School-Level Finance Survey TANF: Temporary Assistance for Needy Families