State & Local Tax Blog

Alabama Is The Lowest Taxing State — So Why the Long Face?

This editorial in the Birmingham News surprised me at its melancoly tone. Sort of self-loathing attitude about their own state. I would have seen the “low-tax” attribute as a big positive to bring in business. Instead, this paper wants AL to tax everyone more. Check out the gloominess:

Alabama’s state and local tax burden per person is the lowest in the country, again

Thursday, July 10, 2008

THE ISSUE: Alabama’s state and local tax burden per person is the lowest in the country, again.
Some things never change, not for a decade, or even nine decades.
For at least the past decade, Alabama has ranked dead last in the nation in state and local tax collections per person. State, county and city governments collected $2,782 in taxes per person in fiscal 2006, according to the Census Bureau’s most recent report on state and local taxes and state population estimates. That’s $918 less than the $3,700 national median, with half the states below and half above the latter figure.


If Alabama taxed at the median rate, there would be an extra $4.2 billion for state and local services. If Alabama taxed at the rate of No. 49 Mississippi (unofficial Magnolia state motto: “Thank God for Alabama”), our state and local governments would have $184 million more to spend.
But “no new taxes” has played well in Alabama forever, or at least for more than nine decades, as the 1918 Russell Sage Foundation report makes clear. That report said Alabama didn’t raise enough money to meet citizens’ needs, nor did it raise that money fairly.
In 1918, the answer was tax reform.
“This suggestion will be met by the statement that the citizens of Alabama are firmly opposed to any increase of taxation and that to vote for such legislation would be political suicide to members of the Legislature,” the report said.
In 2008, the answer still is tax reform.
State and local governments still need more money to provide services to their citizens, from police protection, to roads, to schools, to prisons. As Jim Williams, head of the Public Affairs Research Council of Alabama, notes: “We’re trying to do the same thing with about 70 percent of the money, and that’s a hard thing to do.”
It is a hard thing, too, to convince Alabamians of the need to raise taxes. With great reason: Despite the nation’s lightest state and local tax burden, it doesn’t feel that way to many people. That’s because, as the Sage report noted, state government didn’t raise tax dollars fairly then, and it doesn’t now.
Poorer citizens pay a far larger share of their incomes in state and local taxes than the wealthiest Alabamians do. Families in the lowest 20 percent income levels (less than $16,000 a year) pay more than 11 percent of their incomes in state and local taxes, while those in the top 1 percent ($316,000 a year and more) pay only 4.3 percent, the Institute on Taxation and Economic Policy reported earlier this year.
Why is everything so out of whack? Blame sales taxes that are among the highest in the nation and hit the poor the hardest, as well as exemptions and loopholes that prevent much of the state’s wealth from being taxed. Alabama excludes about half the sales tax, 52 percent of personal income and 88 percent of property value from its tax base, a Governing magazine study on state tax systems noted.
That is a recipe for a tax system that burns the poor and middle class as it caters to the wealthy. It is no wonder so many people in Alabama don’t want higher taxes; they’re already paying more than their fair share even though the state ranks 50th in state and local taxes per person.
Only by righting the imbalances in the tax system will the Legislature ever be able to make the case for raising taxes, as well. Yet when we last left lawmakers during this year’s session, they had blown a chance to bring some fairness to the tax system by removing the state sales tax from groceries and raising the threshold at which families start paying income tax.
Nine decades ago, the answer was tax reform. But the Legislature has been much more interested in carving out special-interest tax exemptions than in bringing fairness to the tax system. Suffice it to say, lawmakers have ignored Sage advice.

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