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Alabama, too, needs tax reform

Even after the real-estate-driven financial crisis of 2008-09 ... not the shirkers. It is outrageous for Alabama to rely most heavily on the tax that is most regressive. To be clear, as a conservative, I do not favor "progressive" taxes that steeply ...

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By Quin Hillyer, a Mobile-based Contributing Editor for National Review OnlineHis new novel, Mad Jones, Heretic, is available now at As lawmakers plan their next legislative session Jan9, they should start a review process to fix some bad imbalances in Alabama's state and local tax systems. First, what do I mean by "unbalanced"? Think of it this way: Just as every good financial advisor tells his client to establish a balanced and diverse portfolio so that risk will be shared across numerous holdings and sources of revenue, so too should governments establish balanced revenue streams so that a sudden economic shift doesn't leave them in the lurch. Generally speaking, then, states should set up their state and local revenue systems so that property taxes, which tend to be more stable, and sales taxes, which tend to be more volatile (but which can more quickly attract windfalls when the economy thrives), provide roughly equal revenues(In all of these discussions, by the way, we are considering state and local governments together, because state law usually conditions the breakdown of revenue sources between state government and local ones.) Indeed, while some states surely have made some adjustments in the past seven years, this rough parity does indeed exist nationwideBased on 2010 data (which commonsensically combines sales taxes and gross receipts taxes together), the Tax Foundation reported that the national average for state-local governments was to rely on property taxes for 35 percent of revenue and sales/gross receipts taxes for 34 percent(Individual income taxes made up 20 percent, and other sources 11 percent.) Alabama, on the other hand, relied on property taxes for just 19.4 percent of its revenues, while over-relying on sales taxes, for 47.5 percent of the total(Since then, the property tax portion has fallen even further in Alabama, to 17.2 percent, while sales and gross receipts taxes have ticked even higher, to 48.3%.) Different studies all show the same basic information (the Tax Foundation, the Federation of Tax Administrators, the Tax Policy Center, Wallet Hub, and others use somewhat different methodologies, and so their rankings different from each other very slightly): Among all 51 states (counting Washington DC), Alabama's property tax burden is second or third lowest, while its sales tax burden is about the 11th highest as a percentage of income and the about the fourth highest in terms of raw rates. Now, you might ask how, in practical terms, that situation hurts us. The answer: in multiple ways. First, while the general antipathy to property taxes in Alabama does have some philosophical roots, in practice it is counterproductiveAs the Tax Foundation - generally seen as a center to center-right outlet - explained, "Economists tend to favor taxes on real property and improvements (land and structures), as they conform reasonably well to the benefits testThey help to pay for services tied to property ownership--local road maintenance, law enforcement and emergency services, and the like--and the value of the property is a reasonable, if imperfect, proxy for the value of those servicesMany economists also favor property taxes over alternative forms of taxation, like income and sales taxes, because [property taxes] have a relatively limited impact on economic growth and development." Indeed, every available source I can find agrees with this: Property taxes impede economic growth somewhat less than do consumption taxesFor example, the Tax Foundation reports that "avoidance of sales tax is most likely to occur in areas where there is a significant difference between two jurisdictions' sales tax ratesResearch indicates that consumers can and do leave high-tax areas to make major purchases in low-tax areas, such as from cities to suburbsBusinesses sometimes locate just outside the borders of high sales tax areas to avoid being subjected to their rates." So in Mobile, for example, the 10 percent sales tax is a major deterrent for people when they choose where to shop, especially for "big box" items or for a buying spree at, say, Christmas time, because in nearby Pensacola the rate is just 7.5 percent and in Pascagoula it's just 7 percent. Second, as noted above, property tax revenues are more stable (and, generally, they tend to climb, steadily if not spectacularly), and thus allow policy-makers to plan budgets with more confidenceEven after the real-estate-driven financial crisis of 2008-09, average home values are now higher than they were in 2000 - and in each of the six decades from 1940 through 2000, average home prices rose, thus making property taxes a reliable "growth" tax for planning purposes. Third, and crucially, it is incontrovertible that sales taxes are the most regressive of all common taxes - meaning they take a larger percentage of household income from the poor than from the richThe Institute on Taxation and Economic Policy reported in 2015 that "sales and excise taxes are the most regressive, with poor families paying almost eight times more of their income in these taxes than wealthy families, and middle-income families paying five times more." Let's emphasize this: The disproportionate burden falls not on the rich or on the idle poor, but on the working poor - the workers, not the shirkers. It is outrageous for Alabama to rely most heavily on the tax that is most regressive. To be clear, as a conservative, I do not favor "progressive" taxes that steeply confiscate larger percentages of higher incomes than lower onesEffective tax rates should be neutral, or only mildly progressiveBut in no way, shape or form should they actually take more (in percentage terms) from the poor than from the richThat's immoralYet, even after some income-tax reforms in Alabama a decade ago, our state and local tax burden on the working poor and lower-middle income earners is more onerous than it is on the wealthy. Alabama should be ashamed at this state of affairs, and ought to reform it. Finally, let this be understood: Overall, it is better to be a low-tax state than a high-tax state, and to have a lean government rather than an invasive oneWhile it might be argued that Alabama's total government revenues fall slightly below the public needs, it remains a good thing that Alabama's total tax burden gives it a competitive advantage against other states. This column does not argue for significant overall tax hikesIt merely argues for re-balancing the taxes we already haveThe current system hurts job growth and wages, and it immorally harms low-income workersEvery lawmaker in the state should be committed to changing that sorry state of affairs. window._taboola = window._taboola || []; _taboola.push({ mode: 'alternating-thumbnails-a', container: 'taboola-below-article-thumbnails', placement: 'Below Article Thumbnails', target_type: 'mix' }); if (pb_page_template == undefined) { var pb_page_template = 'article'; } if (pb_page_template != "index") { document.write('); } Down in Alabama News and life Daily briefing »'s Ike Morgan talks about what's going on in our stateListen on: iTunes Alexa Stitcher Google Play Soundcloud Columnists John Archibald Kyle Whitmire Roy SJohnson Most Read Active Discussions if (pb_page_template == "index") { document.write('); } else { document.write('); } /* */ resimg.resimf(); About Us About Alabama Media Group Jobs at Alabama Media Group Advertise with us News In Education Frequently Asked Questions About Contact Us Online Store Already a Subscriber? 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