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| Volume 7, Issue 5, May 2008 |
| Tax reform shouldn't give with one hand and take with the other |
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| Gary Palmer Alabama Policy Institute Special to the Free Press It seems Alabama politicians never learn; they just keep trying to fool the people of Alabama. The latest version of tax reform legislation appears to help lower-income families in Alabama but it’s simply another example of the hypocrisy and subtle deception that too often characterizes legislation in Alabama. This version of tax reform features a constitutional amendment to eliminate the state sales tax on groceries. Legislators pushing the bill say it will help lower-income families who spend a disproportionate amount of their income on groceries. According to the supporters of the bill, Alabama has one of the most regressive tax systems in the country and eliminating the state sales tax will make our tax code less regressive toward the poor which would seem to indicate sincere concern for the poor. Interestingly, some well-known and well-documented facts raise valid questions about the sincerity of some legislators’ concern for the poor, especially when those same legislators push to eliminate the state sales tax on groceries while also pushing gambling that preys on the very same poor people they are supposedly trying to help. For instance, a May 2007 article in The Christian Science Monitor reported that people with incomes of less than $10,000 spend three times as much in real dollars on gambling as those with incomes over $50,000. The National Gambling Impact Study Commission found that lower-income households spend about 10.8 percent of their income on gambling versus 0.7 percent by households in the highest income brackets. The study also found that lower-income households spend $597 per capita annually on gambling which is far more than lower-income families in Alabama would save with the elimination of the state sales tax on groceries. Other studies show that the introduction or expansion of gambling actually results in a decline in spending on food and housing. Moreover, in addition to the hypocrisy involved, it appears there is some deception as well. To replace the revenue that would be lost by repealing the state sales tax on groceries, the proposed amendment would eliminate Alabama taxpayers’ right to deduct federal income taxes on their state tax returns, resulting in a $550-600 million income tax increase. The proponents of this bill argue that this massive tax increase will only affect Alabama households in the top 20 percent income bracket. But a closer examination indicates, as a result of losing the federal tax deduction, households with incomes as low as $45,000-$50,000 that itemize deductions could pay higher taxes even with the elimination of the state sales tax on groceries. In other words, this bill gives a little with one hand but it takes a lot with the other. Aside from the hypocrisy and the misrepresentation of the tax increase, there is also the fact that this proposed amendment does not address the fundamental problems that continue to plague the state of Alabama. No Alabama voter should support any initiative that raises taxes until the Alabama Legislature addresses the issue of accountability. Contrary to the perception that some legislators give to Alabama taxpayers, the fact that the state is once again facing a revenue problem does not mean we are running short of money. Alabama has more revenue now than at any time in the history of the state. By the end of the fiscal year, state revenues will be at a record high, topping last fiscal year’s record which topped the previous fiscal year’s record. By the end of this fiscal year, Alabama’s net revenues will be over $2 billion higher than the net revenues reported for fiscal year 2002-03. So, with record revenues, why is Alabama facing a potential budget shortfall this year? The answer is simple. Last year the leadership in the legislature ignored the signs of a slowing economy and passed a budget with record spending. The majority of Alabama taxpayers will welcome tax reform that is fair to everyone. But tax reform without real reform of spending and accountability will be virtually useless, especially if tax reform means raising more money which will be controlled by powerful special interests or used for more pork barrel spending. Real reform will include reforming or eliminating earmarks to allow state leaders the flexibility they need to manage the state’s revenues. Real reform will include setting reasonable limits on how much the legislature can increase spending each year and using surpluses to establish an un-earmarked budget reserve account. And real reform will focus on creating a tax code that is fair to all Alabama families and businesses, that does not pit one group against another and that is not loaded with hypocrisy and deception. Tax reform that helps lower-income households is laudable; the real goal should be comprehensive tax reform that is fair to all. Abraham Lincoln put it best, "You cannot pull a man up by dragging another man down." About the author: Gary Palmer is president of the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families. |
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