Monthly Archives: November 2012

Corporate incentives need federal attention

Corporate maneuvers at Brown-Forman Corp. are a reminder that the nation needs to focus on taxpayer-funded incentives.

In June, the company announced it would locate a Jack Daniel’s whiskey barrel manufacturing plant at Mallard Fox West Industrial Complex. It was great news for Lawrence County, which has long struggled with high unemployment.

The $55 million facility initially will employ at least 110, with employment expected to rise to 225. The announcement was especially important because the company will be the first tenant at Mallard Fox West.

Lawrence County has an excellent workforce and has invested heavily in the industrial park, but that was not enough to attract Brown-Forman. Like all industries considering Alabama, Brown-Forman had the ability to demand concessions. If Lawrence County did not welcome the employer, someone else would. The end result: The company received $63 million in state and local incentives.

On Tuesday, Brown-Forman announced a special cash dividend for its shareholders. The timing of its dividend involved tax avoidance. If Congress fails to reach a deal on the expiration of various tax cuts by Jan. 1, dividends will be taxed as ordinary income instead of the current 15 percent. According to Moody’s Investor Service, the special dividend involves a corporate payout of $850 million.

The net effect is that Alabama taxpayers paid or forfeited $63 million, which went to shareholders so they could avoid federal taxes.

There is no bad guy in this scenario. Alabama and Lawrence County made a wise investment that probably was necessary to secure a solid employer. Brown-Forman has an obligation to maximize the return to its shareholders. It can do so not just by producing quality whiskey, but by pursuing incentives and avoiding taxes.

The loser in this interstate competition, of course, is the taxpayer.

Acting alone, Alabama cannot solve the problem. The best it can do is scrutinize every incentive to ensure the benefits to the state are worth the cost.

Any solution must be on the federal level, because it must come in the form of a limitation on the amount and type of incentives a state can offer. Most states — especially cash-strapped ones like Alabama — would probably welcome such legislation.

Ideally, states would compete for employers not by emptying their coffers to corporate shareholders, but by investing in their workforce and infrastructure. That ideal will remain out of reach unless Congress takes action.


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Filed under Subsidies

Alabama’s insurance monopoly

Alabama is one of the least competitive states for health insurance, according to a study released Wednesday by the American Medical Association.

The stark conclusion should disturb Gov. Robert Bentley.

Bentley recently announced the state would take no part in developing an insurance exchange designed to inject competition in the state’s monopolistic health insurance market, punting the responsibility to the federal government.

The AMA study examined health insurance market shares and concentration levels in all 50 states and the District of Columbia. It concluded Alabama was the least competitive in the nation in both the commercial health insurance and preferred provider organization markets. The state is the second least competitive market for health maintenance organizations.

The lack of competition hurts consumers. Insurance companies with monopolies charge higher premiums, reduce benefits and inflate their profitability.

“It appears,” the study concluded, “that consolidation has resulted in the possession and exercise of health insurer monopoly power.”

The Affordable Care Act, lambasted by Bentley, includes numerous mechanisms designed not only to increase access to health care but to control costs. One of the most promising cost controls is state-run exchanges.

The exchanges force insurance companies to compete on relatively equal terms for consumer dollars. Individuals and employers have the ability, through an exchange, to compare insurance policies with identical benefits. In order to attract customers, insurers will have to keep rates as low as possible.

Until the issue became politicized, Bentley recognized the advantages of an insurance exchange. He accepted federal funds and appointed a panel to study the creation of such an exchange. The panel concluded it was feasible and could be administered in a way that would cost the state budget nothing. Bentley’s panel recommended the state set up an exchange. Bentley rejected the recommendation.

One of Bentley’s consistent complaints about a state-run exchange is that federal rules fail to specify how it should be run. He calls this a federal failure, but in fact it provides flexibility for state government to design an exchange tailored to Alabama’s unique market.

The AMA study is a reminder that at least one element of the Affordable Care Act is desperately needed in Alabama. It is a shame that Bentley’s political fear of embracing any part of “Obamacare” is preventing him from adopting a reform that would benefit Alabamians.

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Filed under Alabama politics, Health care, Obamacare

Fixing Alabama schools

Former Florida Gov. Jeb Bush spoke Tuesday at a conference sponsored by his Foundation for Excellence in Education, and many Alabama lawmakers listened intently.

Bush has correctly diagnosed one of the most serious problems facing the nation.

“We have these huge gaps in income, with people born into poverty who will stay in poverty,” Bush said. “This ideal of who we are as a nation — it’s going away, it’s leaving us.”

Few would argue with the solution Bush proposes: improved education for all students, especially those living in poverty.

The details, though, raise concerns.

Many of Bush’s proposals involve giving taxpayer money to private companies. And no surprise, the prospective corporate beneficiaries contribute to Bush’s foundation and are lobbying Alabama lawmakers.

These corporate interests last year backed a law that requires the grading of all Alabama public schools from A to F. In Florida, a similar law now requires taxpayers to pay for vouchers allowing students in schools that received low grades to attend private schools.

Giving tax dollars to educational corporations is not an inherently bad idea. If public schools can’t get it done, then lawmakers are right to look at other options. Generational poverty is crippling Alabama, and innovative approaches may be necessary.

The first step, though, should be to provide public schools with the resources they need. State funding for K-12 schools this budget year is 21.7 percent below fiscal 2008 levels, the second steepest drop in the nation.

Alabama legislators can expect cynicism if their first step toward educational excellence involves giving tax money to private corporations with expensive lobbyists. The first step should be adequate funding of public schools, an experiment never tried in Alabama. If that does not work, bring on the lobbyists.

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Filed under Alabama politics, education

Sen. Sessions aims for cliff

If America goes off the “fiscal cliff,” the most likely reason is a pledge taken by many Republicans to oppose any increase in taxes.

U.S. Sen. Jeff Sessions, R-Mobile, on Tuesday reiterated he would abide by that pledge, regardless of the consequences.

Many leading Republicans are recognizing the pledge is too simplistic. It does not, for example, permit the elimination of deductions enjoyed by the wealthiest Americans without a corresponding drop in their marginal tax rates. Given the political chicanery that created many of the deductions, this effectively locks in the legalized bribery that is rampant in Washington.

If Republicans cannot make sensible concessions on increasing revenue as a part of the effort to reduce the deficit, the automatic tax increases and spending cuts that take effect Jan. 1 could cause a recession.

Sessions needs to re-think his loyalties.

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Filed under Tax reform

Ditching the tax pledge

An important trend is developing in national politics that should spread to Alabama.

Several prominent Republicans have signaled their recognition that their first loyalty must be to their constituents, not to an anti-tax pledge they signed for lobbyist Grover Norquist.

Among those with the courage to speak out: U.S. Sen. Saxby Chambliss, R-Ga.; Sen. Lindsey Graham, R-S.C.; Sen. Bob Corker, R-Tenn.; and Rep. Peter King, R-N.Y.

None of these officials are saying an increase in taxes is a good thing. They are, however, acknowledging that effective leadership precludes taking possible solutions off the table. America faces thorny problems, and our leaders need flexibility in solving them.

Nowhere has the Norquist pledge been more out of step or more damaging than in Alabama. 

Most of the state’s elected federal officials signed the pledge, even though Alabama disproportionately benefits from increased national revenue. For every dollar in federal taxes Alabama raises, it gets $1.67 back. That’s not proof that federal taxes should go higher, but it suggests the issue is more complex for poor states like Alabama that benefit heavily from federal expenditures.

Alabama’s elected state officials are especially vocal in their anti-tax positions. Our lowest-in-the-nation taxes, however, have not resulted in growth. At $34,880, the state’s per capita income is 42nd in the nation, about the same as it has been for a decade. The state’s poverty rate is perpetually high and its budget deficiencies are chronic. Political influence means that many of those with the highest income pay the least to support state government.

Tax increases are never ideal, but sometimes the consequences of not raising them are worse.

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Filed under Conservatism, Tax reform

The Walmart conundrum

On Black Friday, protests at many Walmart stores did little to slow the flood of deal-seeking shoppers.
Walmart is brilliant at meeting demand with supply. It provides U.S. consumers with inexpensive goods, particularly important for America’s expanding low-income class.
What’s not to like?
Unfortunately, the positives come with negatives.
As north Alabama has discovered, Walmart’s immense size and its ability to control supplier costs means its presence in a community tends to squeeze out local business owners and their employees.
One way Walmart manages to underprice smaller competitors is by purchasing inventory from overseas. Such goods are cheaper because the foreign laborers who produce them make low wages. Walmart, in other words, effectively pits U.S. workers against foreign workers, and the result is downward pressure on U.S. wages.
The wages and benefits of Walmart employees, critical to low prices, are troublesome. According to some studies, Walmart workers average less than $9 per hour. Most lack health insurance. The result is that some must supplement their wages with government assistance. According to a 2005 study, Walmart had more employees with children on Medicaid than any other Alabama employer.
Many Walmart workers are among the “working poor” that bedevil policy makers even as they drain state and federal budgets.
Blaming Walmart does no good. Its executives have a duty to shareholders to maximize profit, which includes minimizing labor expenses. They’ve been successful in this goal, as indicated by the fact that founder Sam Walton’s heirs rank high on the list of the world’s wealthiest people.
Is America content with a situation in which its citizens can work hard without escaping poverty? Is it content with employers providing wages and benefits so low that taxpayers must provide indirect subsidies? On the other hand, are Americans willing to tinker with capitalism to correct a growing social problem?
The solutions are not easy, but the problems are real.

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Filed under Capitalism, Health care, Poverty

Blaming the poor

An Alabama past time nearly as popular as football is blaming the poor.

Irresponsible personal decisions, claim many who themselves are one calamity away from poverty, are responsible for the desperate circumstances of the poor.
The poor don’t take care of themselves, we like to believe, as evidenced by obesity and diabetes rates. They don’t raise their children right, as demonstrated by school discipline problems. They have children out of wedlock and have high divorce rates. They too often abuse alcohol or drugs. We file away these factoids as proof that they have brought their poverty on themselves.
A study released last week by the U.S. National Institute on Aging is a reminder that we may have the causal relationship wrong. Poverty often is a cause, not a result, of the behaviors we so eagerly document.
The study found people who suffer job loss are at the greatest risks for heart attacks.
Numerous other studies find a relationship between poverty and high rates of obesity and high rates of mental illness, such as depression and anxiety.
This should come as no surprise. Stress kills. In addition to the stresses common to all humans, those who lose jobs or live in poverty must deal with additional and extraordinary pressures.
How will they find health care for their families? How will they stay in their home or maintain the car they use to seek or continue employment? How will they pay to keep their children in extracurricular activities at school? Will they find enough money to keep the power on? Will the landlord cash the rent check before they can deposit the money? If cash runs out Thursday, how will they feed the kids on Friday?
The poor and unemployed are not unique in struggling to cope with stress. All of us are more prone to bad decisions when life seems hopeless. Our relationships, both with spouses and children, tend to fray when we feel inadequate. The temporary escape of intoxicants becomes a greater temptation. Planning for the future seems futile.
In Decatur, 31 percent of households have annual incomes below $25,000, according to the census. One in four families with children live in poverty. Sixty-two percent of Decatur City Schools students qualify for free or reduced lunches.
We get satisfaction from convincing ourselves that the poor are fundamentally different from us, that they deserve their plight. We want to believe we would react differently.
The sobering truth is that humans are more alike than different. What separates the poor from everyone else has more to do with circumstance than character.

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Filed under Poverty