Alabama’s taxes are too low to operate a state, even with the minimal services to which Alabamians have become accustomed.
For many, the wake-up call came with the Sept. 18 referendum transferring $437 million over three years from the Alabama Trust Fund to the General Fund. Voters approved the amendment — with considerable frustration — because they recognized elected officials could not cover the most basic obligations of the state without the money.
While some streamlining already has taken place and more may be possible, there is a massive gap between state revenue and expenses. This should come as no surprise, as Alabama’s per-capita tax burden is the next-to-the-lowest in the nation.
It maintains this ranking while having the eighth-highest state and local sales tax rates, which disproportionately burden the poor. The total tax burden is low, even though Alabama is one of only two states that offers no tax breaks on groceries.
This $437 million gap, however, tells only part of the story. Alabama maintains its low tax rate in part by relying on the federal government. The latest data from the Tax Foundation shows Alabama received $1.66 from the federal government for every $1 it sent to Washington. Residents of other states are paying more so we can keep our taxes low.
Many of our hospitals and doctors are staying in business only because the state receives $2 in federal money for every $1 it spends on Medicaid. Our Medicaid expenditures are high not because the state is lavish — the state program barely meets minimum standards and is among the worst-funded in the nation — but because many Alabamians are poor. The state’s median household income is 46th in the nation.
Using Mitt Romney’s gauge of worth, Alabama fails miserably. The state has the third-highest percentage of citizens whose income is so low they owe no federal income tax.
The answer is not to squeeze more taxes from the politically impotent poor. Low- and middle-income Alabamians pay more than twice as much of their income in state and local taxes as do those with the highest incomes.
The Legislature instead needs to evaluate the tax code with an eye toward raising revenue from those corporations and individuals who can best afford it.
Since many tax breaks have been maintained through generous political contributions, legislators will be in the awkward position of having to place the interests of the state over the interests of their generous financial supporters.
Responsible leadership is tough.
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