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By Steve Reeves
November 25, 2001

   Critics of Alabama’s tax structure say it is regressive and places an unfair burden on the state’s poorest families while benefiting powerful special interest groups like the timber industry.

   Alabama is the only state to tax residents making less than $5,000 a year. The poorest families in the state pay about 11 percent of their income in income, sales and other local taxes. The richest families - those making more than $238,000 - pay less than 5 percent of their incomes in taxes because of loopholes in the Alabama tax code.

   Results of a poll released last week by The New York Times Regional Newspapers in Alabama show 65 percent of registered voters believe the current state tax structure favors the rich and hurts the poor. The poll has a 5 percent margin of error.

   Many say the loopholes for the wealthy pale in comparison to the tax breaks provided to landowners. Pressured by the lobbying arm of the Alabama Farmers Federation, state legislators in the early 1980s passed legislation that reduced by half the tax assessment on agricultural property while increasing the burden on residential and business properties.

   The result is timber companies that pay a fraction of the property taxes neighboring states would charge for the same acreage. Timber is taxed in Alabama as low as 95 cents per acre, compared to as much as $4 per acre in Georgia.

   ALFA is wary of any proposal to revamp the 1901 state constitution because of the possibility of higher taxes. The group is not opposed to rewriting some portions of the constitution, but believes gambling interests and tax-hike proponents could dominate a statewide convention.

   "I think ALFA in particular is trying to cast constitutional reform as nothing more than a tax-raising measure," said Mary Weidler, a policy analyst with the low-income advocacy group Alabama Arise.

   The recent poll, conducted by Southern Opinion Research, showed 72 percent of voters in Tuscaloosa County say state government is run by a "few big interests." Only 23 percent of those polled thought the state tax structure treated everyone equally.

   "Everybody wants to make sure they don’t pay more than their fair share of taxes," said James Williams, executive director of the Public Affairs Research Council of Alabama. "But everybody has a different definition of what is fair."

   According to PARCA, there are three tests of a tax system: Is it fair to all taxpayers? Does the system efficiently distribute revenues? Does the system provide adequate funding for public services?

   Williams said Alabama’s tax system is seriously lacking on all three counts.

   "Nobody is going to be willing to make the tough choices of increasing taxes if we don’t have a fair and efficient tax system," Williams said.

   Many believe constitutional and tax reform are linked. Williams said some of the state’s tax code can be revamped without changing the constitution, though property taxes and parts of the income tax code are set by the constitution.

   "You can’t really divorce tax and constitutional reform," Williams said.

Earmarking revenue

   All states earmark funds for certain uses. For example, vehicle registration taxes often go to fund highway programs.

   But Alabama carries the practice of earmarking to extremes, critics claim, usually at the expense of the public school system.

   Most states earmark less than 30 percent of their tax revenues. Alabama earmarks seven out of every eight dollars, four times more, on average, than any other state.

   "If earmarking is so great, then why is every other state going in the other direction?" Williams said. "It’s almost impossible to control spending when you earmark."

   Alabama earmarks most of the state income tax revenue for teacher salaries and state sales taxes for general education purposes.

   Alabama has faced proration -- the slashing of the education budget because of revenue shortfalls – an average of every four years. PARCA says the practice of earmarking funds, which is set by constitutional provisions, hinders the state from setting up an adequate emergency reserve fund for its schools.

Last in revenue

   Alabama ranks dead last among states in tax revenues, even though some states such as Mississippi have far fewer taxable resources.

   While Alabama is not rich in taxable resources, the problem is compounded because Alabama taxes its resources at a lower rate than almost every other state.

   Alabama’s property tax rate is the lowest in the nation, 60 percent below the national average. In fact, Alabama could triple its property tax and would still be below the national average.

   On the other hand, Alabama is about 20 percent above the national average in collecting sales tax, considered the most regressive of taxes.

   According to PARCA, if each state in the Southeast in 1997 had the same population as Alabama but collected taxes at its own per capita rate, all would have generated more revenue than Alabama. Even Mississippi would have collected $525 million more than Alabama.

   William O’Connor, president of the Business Council of Alabama, said his group would likely oppose any tax reform efforts that would raise taxes on businesses in the state and possibly deter large corporations from relocating here.

   "It has the potential to hurt your economy," he said.

   But PARCA’s Weidler said any tax system that places a heavier burden on the poor than the wealthy will continue to have a negative impact on the state’s economic future.

   "We can’t continue to do business the way we did at the turn of the century 100 years ago," Weidler said.

Reach Steve Reeves at steve.reeves@tuscaloosanews.com or 345-0505, Ext. 343.

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