I'm sorry the Alabama tax referendum was defeated yesterday. Part of the reason for the defeat is the usual one, the fact that Americans have a simpleminded view of taxes -- they think all tax money is poured down a rathole, and then government services arrive courtesy of elves and fairies. But it looks as if the real problem was that the plan tried to do three things -- close a budget shortfall, reverse some of the shocking regressivity of Alabama's tax code, and establish new state programs, particularly in education -- and that was one or two goals too far.
That regressivity is ugly. The Institute on Taxation and Economic Policy (ITEP) has summarized the problem:
Alabama families earning less than $13,000 -- the poorest fifth of Alabama non-elderly taxpayers -- pay 10.6% of their income in Alabama state and local taxes.
Middle-income Alabama taxpayers -- those earning between $21,000 and $36,000-- pay 9.8% of their income in Alabama state and local taxes.
But the richest Alabama taxpayers -- with average incomes of $682,000 -- pay only 4.9% of their income in Alabama state and local taxes before taking account of tax savings from federal itemized deductions, and only 3.8% after the federal offset.
(The ITEP's report is available here as a PDF and here as HTML.)
That "federal offset" is, as The New York Times reminds us today, the complete deductibility of federal taxes on the Alabama state tax form, a deduction that, needless to say, disproportionately helps the well-to-do.
And as Susan Pace Hamill, the Alabama law professor whose article "An Argument for Tax Reform Based on Judeo-Christian Ethics" influenced Governor Riley's call for the tax increase, points out,
Timber acres, which cover 71 percent of Alabama's real property and account for substantial profits earned in the state, pay less than two percent of the property taxes, averaging less than one dollar an acre. The minimal property taxes paid by timber is the principal reason that rural parts of the state have no ability to adequately fund their public schools.
That argument seems to have held sway with voters in the state's "Black Belt" (the only counties that voted yes were there), but not elsewhere.
Voters may have been dubious because the tax plan would have raised more money ($1.2 billion) than the state's current shortfall ($675 million). The Birmingham News reports today:
"It was a huge, huge mistake to ask for twice what you need," said Roger McConnell, founder of the anti-plan Tax Accountability Coalition....
Another complaint was that
None of the state money Riley's plan would have raised would have been earmarked, or reserved, for specific purposes such as funding his proposed college scholarships.
That opened the door for opponents to say Riley wanted to create a $1 billion-plus slush fund for lawmakers, said state Sen. Jabo Waggoner, R-Vestavia Hills.
The "rathole" argument again. Also,
People disliked the part of Riley's plan that would have imposed state and local sales taxes on labor charges for repairs and installations. Waggoner said people complained to him the most about the services tax.
Marty Connors, chairman of the state Republican Party, said the services tax would have affected everyone, including poor people, which undercut Riley's claim that the package would have eased the overall tax burden on the poor.
Of course, the current tax structure imposes income taxes on a family of four once its income hits $4,600, and the proposed change would have raised that to $17,000, then, in three years, to $20,000, as The New York Times points out. Surely that would have offset some of the fees for the poor. But that argument didn't wash.
That scholarship fund wasn't the only improvement Governor Riley proposed as a possible result of the tax increase, as The Birmingham News noted a couple of days ago:
Riley says the money could fill a state budget shortfall that he says will total $675 million in the budget year starting Oct. 1, and also raise enough money to create a world-class education system in Alabama.
Riley's plan also would set up a college scholarship program, streamline the appeals process for fired teachers, make public schools hire a total of 1,550 teaching specialists and make other changes, such as making it a crime to hide in state budgets money for lawmakers' special "pork" projects.
In this country it's hard enough to sell the notion of raising taxes to close a budget gap -- I don't know why the governor thought he could also sell the idea of making improvements, of any kind, even if they're crucial to keeping his state from being an undereducated, underdeveloped backwater.
Oh, well. The Anniston Star tells us today what comes next:
The deficit, Riley has said, could cause the state to eliminate nursing home eligibility for 6,900 seniors on Medicaid, close 60 senior centers, eliminating nearly 800,000 meals for seniors, and cut state trooper forces by one-third and release 5,000 prisoners early.
The Department of Education estimates it will cut funding to local school systems by $100 million next year. State education officials said that means cutting funding for classroom materials and supplies, libraries, technology equipment and software, staff development training and textbooks for next year.
... next year, roughly 6,600 teachers and 2,000 support personnel may be laid off, and schools will face a 10 percent cut, said Ed Richardson, state superintendent of education....
...it will be hard to avoid massive cuts, said Jim Williams, head of the Public Affairs Research Council of Alabama, a non-partisan tax reform organization....
The cuts... will likely come in three forms: layoffs, elimination of eligibility for health insurance and retirement benefits, decreased funding for things such as museums and cultural centers and increases in tuition for higher education students and more fees for K-12 students....
...Sen. Gerald Dial, D-Lineville, is planning to introduce a bill this special session to allow schools in financial trouble to close 25 days early....