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Monday, March 13, 2006
PoliColumn: Alabama Tax Politics
By Dr. Steven Taylor @ 8:22 am

(I forgot to check to see if this ran yesterday)

From Sunday’s Mobile Register:

Tax cut is shrewd and good
Sunday, March 12, 2006
By STEVEN L. TAYLOR
Special to the Register

The tax-cut compromise pending in the Alabama Legislature is both just and politically shrewd, and here’s why:

The state of Alabama starts collecting income taxes from a family of four at an income level $4,600 a year. As a new study published last month notes, this is the lowest level at which income taxes are levied on the poor in the country.

The next state on the list is West Virginia, and it starts taxing at the $10,000 level.

In January, Gov. Bob Riley issued a proposal to rectify this situation, and counter-proposals subsequently grew out of the legislative session.

Now, the governor and Rep. John Knight, D-Montgomery, have come to a compromise that has a good chance of being approved by the House.

The plan, which would be phased in over five years, would move the beginning of income tax collection for a family of four to $12,400. It would do so by increasing the standard deduction from $4,000 to $7,000, the personal exemption from $1,500 to $1,700, and the dependent exemption from $300 to $1,000.

The changes to the personal exemption would stop for individuals making over $100,000 and for joint filers making over $200,000.

The Riley-Knight compromise lowers the overall increases to the exemptions originally proposed by Riley, and creates the caps for high-income earners — whose taxes would not change under this plan.

Not only would this plan be a just move in regard to taxing the poor, but it is also a shrewd political move by the governor for a variety of reasons.

First, the governor’s primary opponent, Roy Moore, has one main line of attack to level at Riley in terms of public policy: that Riley attempted the largest tax increase in the state’s history when he backed Amendment One in 2003. If Riley is now championing tax cuts, that blunts Moore’s line of attack.

Yes, Moore can claim that this is an election-year conversion, but that will not obviate the fact that Riley will be in office working for tax cuts, while Moore will be on the outside trying to get in, only able to criticize.

Such are the powers of incumbency in elections.

Second, the rationale as proffered by the governor helps to reinforce his conservative “bona fides,” which Moore will also attempt to attack. Riley specifically noted in January: “If we don’t offer tax relief when we have a record surplus and will put more money into education than ever before, then when will we ever?”

Such a statement underscores a basic conservative principle that tax dollars ultimately belong to the taxpayers, not the state, and that at times of surplus, some of those dollars should be returned to the people.

And, the fact that Riley correctly notes that education spending will be at a record high helps dull the ability of critics to attack the proposal.

He also is making a favorite conservative argument that more money in the pockets of taxpayers means more economic activity in the state, which in turn ultimately means more tax revenue for the state.

If Moore cannot successfully assail Riley’s fiscal conservatism, then it is doubtful that the moral values line of attack (as exemplified by the Ten Commandments issue) will be sufficient to unseat Riley as the GOP’s nominee.

Third, these are not just run-of-the-mill tax cuts. By framing the proposal around the issue of exemptions, and thus the level at which a person starts paying income taxes in Alabama, the governor has inserted a significant element of social justice into the mix, which could appeal to moderate voters (and legislators).

As it stands, a family of four starts paying state income taxes at a remarkably low level. That this is an undue burden on those in poverty is incontrovertible, and is one of the key criticisms of our state’s tax structure.

Indeed, by the 2004 poverty standards used by the federal government, a family of four is considered at the poverty line with an annual income of $19,157 — a far cry from $4,600.

Fourth, while the plan does target low-income citizens, it still has the politically attractive element of benefiting not just the poor, but middle-and upper-middle-class taxpayers as well.

There will be criticisms of the plan, insofar as while this year may be a fat one in terms of state revenues, there is no guarantee that such a trend will continue.

Indeed, given our state’s history of budget shortfalls and painful prorations, there is a legitimate concern that the money needed to fund this cut (estimated at $200 million per annum once fully implemented, as based on a state Finance Department analysis) will not be available in the future.

The nature of fiscal policy in Alabama is that state revenues are highly dependent on the health of the state’s economy. At the moment, we are in an exceptionally healthy phase, and as a result the state’s coffers are overflowing.

However, when revenues depend on income and sales taxes, a moderate dip in economic strength could severely curtail state revenues.

Also, because the money to fund Riley’s proposed cuts come from funds earmarked for teacher salaries, Paul Hubbert of the AEA is far from impressed. However, one suspects that since Riley can hardly count on AEA’s support in the first place, that making Hubbert mad is the least of his concerns.

Apart from the potential political gain for Riley, this proposal has the more important feature of aiding the neediest of Alabama’s income-earners.

Filed under: My Columns, Alabama Politics | |Send TrackBack

2 Comments »

  1. First of all I agree with you about the tax threshold desperately needing to be raised in Alabama, but Riley would do well to try and mend some fences with Paul Hubbert. now I don’t think any tax plan that raids the education trust find (which this one will do) would gain his support, there are other alternatives. The question that needs to be asked is whether or not Riley is willing to put election year politics over what he can achieve for political gain or not, I personally don’t think that will happen because that is the only way Roy Moore will have a chance in June.

    Comment by Talmadge East — Monday, March 13, 2006 @ 8:54 pm

  2. All I can say is if the people of Alabama elect Moore, then they deserve that jackass.

    Comment by Sonny — Monday, March 13, 2006 @ 8:55 pm

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