Monday, June 27, 2011

Never-ending problem

Anyone foolish enough to want to design a taxation system that offers the triple threat of inequity, inadequacy and inconsistency has a near-perfect model in Alabama. That's just what our skewed taxation system does, particularly when the economy takes a downturn and its flaws are magnified.
A weak economy is going to cause some budget problems for a state, to be sure, but a more balanced taxation system would make the tough times more manageable. It would help Alabama avoid the boom-and-bust revenue cycles that have so long been part of our state's fiscal life.
This erratic path is not irreversible. The taxation system can be changed, but it will take a lot more political will than Alabamians have seen mustered so far.
Our state relies too heavily on consumer taxes, particularly sales taxes. These are notoriously susceptible to the periodic swings of the economy. Beyond that, they are regressive taxes that lean heaviest on those least able to pay. The sales tax on food -- a tax most other states don't even levy -- is a fine example. Lower-income people, of necessity, spend a larger share of their resources on food, so this tax hits them especially hard.
A dubious deduction for federal taxes -- again, not part of the tax code in most other states -- skews the state income tax in favor of the more affluent. So does the threshold for income tax liability, which has been raised in recent years, but is still quite low.
A fairer tax system would make more equitable use of the state's entire tax base, but in Alabama the property segment of the tax base is scandalously underutilized. No one is advocating for high property taxes, but having the nation's lowest property taxes should not be a point of pride. The implications of that are significant. Property taxes are a more stable source of revenue, which is why they form the foundation of school funding in many states.
Defenders of the current system always note that Alabama is a poor state, as if that somehow justifies such an inequitable arrangement. We aren't that poor; we do have a tax base that could be more fairly tapped. And, poor or not, a fair tax system is a worthy objective.

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