Tax structure targets poor

By Staff
Jonathan McElvy, BNI News Service
Editor's Note: This is the second story in a series addressing Alabama's fiscal crisis and how government officials are tightening the state's financial belt through massive and immediate agency cuts. The series also details efforts to rewrite the state's 1901 Constitution and how officials hope to offset a $500 million shortfall in revenues.
When Bob Riley was elected the state's third Republican governor since Reconstruction, he declared this to be a "new day" in Alabama.
News that the Republican is considering a tax increase of nearly $1 billion offers credence to Riley's contention.
Quentin Riggins, Riley's legislative affairs director, said last week Riley will consider a proposal to raise property taxes and eliminate the deduction of federal income tax from an individual's taxable income.
While some close to Montgomery politics claim Riley purposefully floated a trial balloon to weigh public reaction to Riggins' comments, the governor's deputy press secretary said Riggins' comments were "an accident."
"Right now, all taxes are hypothetical," Pepper Bryars said. "The governor is focused on closing and eliminating the shortfall. However, if that shortfall cannot be bridged, all else is hypothetical."
In January, Riley estimated the state would be short nearly $500 million in revenue. Last week, he indicated that shortfall could be as much as $700 million.
Death before taxes
Alabama has a reputation of being one of the least-taxed states in the union – and for good reason.
According to one study released by the Institute on Taxation and Economic Policy, Alabama's ranked as one of the 10 most regressive tax systems in America.
Analysts dub a "regressive" tax system as one that puts an undue burden of state revenue on the people least able to pay those taxes. And Alabama's ranking appears credible.
The poorest 20 percent of Alabamians pay 11.6 percent of their income in state taxes. Middle income Alabamians pay 9.1 percent. And the wealthiest 1 percent of Alabamians pay only 4.8 percent of their income in state taxes.
Gary Palmer, president of the Alabama Policy Institute – a conservative political think-tank in Birmingham – has never advocated increasing taxes in this state. However, even groups like Palmer's understand it may be time to take a look at how Alabama generates revenue.
While some have claimed Alabama's tax system as "immoral," Palmer said that isn't a proper adjective to use.
"There is a legitimate debate over whether [our tax system] is fair," he said. "But if our tax system is immoral, is it not immoral for government to waste money?"
In what could be considered a methodical approach to winning public approval for a tax increase, Riley has worked tirelessly to eliminate any contention that state government wastes money.
He has stopped Department of Transportation projects; downgraded the fleet of cars state employees drive, even taking away some of those cars; and cut his own pay and the number of employees working in his office.
Through all the expense cuts, which some estimate will reach $200 million, Alabama is far from saving enough money to offset a horrendous fiscal crisis.
Changing tide
K.T. Cole, a vice president for A.G. Edwards &Sons in Troy, has known Riley for more than 20 years. "We've been friends since before he ever thought about being governor," Cole said.
Like so many Alabamians, Cole knows this state has to find a way to generate new revenue.
"If you run the state like a business, and there's not enough money to pay the bills, you have to increase [the revenue] or reduce the business expense," Cole said. "[Riley] has already reduced expenses, so the only way is raising revenues. (And) that's by increasing taxes."
One of the biggest opponents to raising property taxes – apparently one of Riley's ideas – is the timber industry.
Bucky Henson, vice president of Buchanan Timber in Selma, is one of those people who strongly oppose a tax increase. He said a hike in property taxes would devastate his business.
"The timber industry in this country already is under a lot of stress from foreign competition," he said. "Any additional burden from increased taxes will just make that situation worse."
But even Henson understands the financial predicament of Alabama, saying he knows the state also faces the burden of trying to meet the projected budget shortfall.
"Along with any tax increase, we would like to see spending reform addressed as well," he said. "We feel like there's still a lot of waste in government spending."
Fran Robertson, a Realtor in Pelham, knows a property tax increase would hurt her business. At the same time, she said the cost may be worth the pain.
"As far as property tax, I wouldn't be opposed to an increase if it went to the schools," Robertson said. "As far as education goes, I think it's needed."
Bryon Holloway moved from Kentucky to Alabaster in Shelby County, and he thinks Alabamians should lose their anti-tax stigma.
"You just mention the word 'taxes' in this state and everybody goes bezerk," Holloway said. "I am not opposed to paying a little more tax. It takes money to run government."
If there's one group of state professionals that adamantly supports an increase in funding it's the educational sector. Ronnie Driver, superintendent of the Covington County School System, said he couldn't comment on Riley's plan to raise taxes because "I am not familiar with any taxes Gov. Riley is proposing."
Even still, Driver knows the burden schools face today, and there's only one way to ease the strain on education.
"I am not asking from increased taxes, but I think in order to do some of the things we want to do in education – various programs and other things – we need to have increased revenue," Driver said.
If Alabama were to raise taxes, it could lose one of the biggest drawing cards the state has for recruiting industry, said Obie Littleton, a former state senator and Clanton's community economic director.
"Any tax increase affects the recruitment of industry – it's something they look at. It would create some questions," Littleton said.
But there's another side to industries and a tax increase, he said.
"I don't think increased state taxes would be a major set back," Littleton said. "What we forget is that industries also look at the local education system when making their decisions, so if the tax benefits the education system and we can improve in that area, I believe it would off-set any problems generated by added taxes."
What's next?
According to Bryars, Riley's deputy press secretary, there is no deadline for when Riley will consider asking the voters in Alabama to increase taxes.
"The governor does not box himself into arbitrary deadlines," Bryars
said.
At the same time, Bryars did say Riley would be a governor who takes full responsibility for asking citizens to pay more in taxes.
"All tax reform will be done in-house," Bryars said. "Any discussion of tax reform will take place within the administration and will be assembled by the governor and his staff."
K.T. Cole said Riley will prove he is more concerned about the state than his political future if he proposes a tax increase in Alabama.
"We have one of the lowest tax bases in the nation. We hate to pay taxes, we really hate it," Cole said. "If Bob Riley increases taxes, he better just plan on being a one-term governor because it will be very unpopular. It's time to do it, but it's the kiss of death to talk about raising taxes."