Category Archives: Tax reform

How to distract voters: Planned Parenthood

THE ISSUE: Desperate for a distraction that would keep their constituents from expecting them to govern, the Alabama Legislature found one: Planned Parenthood.

It’s an awkward time to be in the Alabama Legislature for those who have spent their political careers calling for smaller government and lower taxes.

What do such politicians do when they already delivered on the small-government promise, but don’t have the tax revenue even to sustain that?

One approach, of course, is to confront the problem. To explain to constituents that as much as they might like the state to provide no-cost services, it needs tax revenue.

That’s the approach Gov. Robert Bentley has taken since being elected to his second and last term. His naive hope was his willingness to educate the people on the realities of running a functional state would give legislators the courage to take the only responsible avenue open to them: increasing taxes.

Far from it, lawmakers delighted in using Bentley as a political punching bag, shaming him by passing a budget they knew he’d have to veto, refusing to go into special session when he asked and proposing unrealistic cuts he will once again have to veto.

With those theatrics getting tiresome, however, lawmakers needed something else. The Planned Parenthood videos — showing an official with the organization discussing the availability of fetal tissue for scientific research — were made to order. Legislators, baffled by the budget, are vocal in their support of a bill that would ban the sale of aborted fetuses.

No matter that a federal law already prohibits sale of fetal tissue and places numerous restrictions on its use for life-saving research. No matter that the tissue has been used for medical research for decades.

The Legislature did not need a bill that mattered, it needed an issue that distracted the public from its utter failure to govern the state. It needed something that would prevent people from noticing it is pillaging the Education Trust Fund rather than fixing the General Fund budget. Legislators needed something sensational enough it would keep constituents from asking why they ignored the imminent budget crisis not just in this year’s regular session, but over the last several years.

Indeed, it takes a major distraction to obscure the fact lawmakers year after year patched budget holes with one-time windfalls and borrowed money, but didn’t grapple with the issue of what to do when the one-time fixes ran out.

A beleaguered Bentley was determined to one-up the Legislature, which he did by ending Medicaid payments to Planned Parenthood.

This gesture was even more pointless than the House bill that largely duplicated existing federal prohibitions. Medicaid does not cover abortions in Alabama. Indeed, total state Medicaid payments to Planned Parenthood over the last two years came to $4,351, and that was for contraception.

With Bentley’s fiscal-conservative halo tarnished by his call for a needed tax increase, he is determined to make headlines that help his social-conservative halo gleam.

Our elected officials have shown us they are brilliant at manufacturing distractions. Now it’s time for them to show they have the backbone to govern.

(Published Aug. 9, 2015)

Leave a comment

Filed under Abortion, Alabama politics, Tax reform

BP settlement doesn’t change need for tax reform

Lurking in the background of the last two or three legislative sessions was the slight hope that the state’s financial problems would find a short-term solution when BP got around to paying up.

A proposed settlement with BP, announced last week, is for a spill that resulted from the April 20, 2010, explosion of the Deepwater Horizon rig, which killed 11 workers. It took three months to cap the rig and stop the flow of oil into the Gulf. The financial consequences for the state and for residents were significant. The damage to the environment was massive, and it is continuing.

The settlement amount may, as the state’s lawyers claim, be adequate compensation for the losses sustained by state government. The General Fund would receive $1 billion over 18 years, with additional funds loosely earmarked for coastal restoration in Mobile and Baldwin counties.

The settlement would mean an additional $55 million per year for the General Fund if it is divided evenly over the 18 years, but it is an open question whether any of the money would be available in fiscal 2016. This amount contrasts to the $200 million shortfall the state faces in fiscal 2016 if it keeps spending at the same level as fiscal 2015, and to the approximately $310 million Gov. Robert Bentley said Friday is needed in order to adequately fund state operations.

The danger is lawmakers will deal with this one-time cash infusion in the same way they have dealt with past windfalls — as an excuse to delay necessary tax reform.

While lawmakers adopt a populist stance when expressing opposition to new taxes, they are protecting the small portion of the population that would be affected by progressive tax reform. Unfortunately, this is the same portion of the population that has the disposable income necessary to dictate legislative action through political contributions.

Lawmakers’ recent history of delaying needed tax reform is what got the state into its current financial mess.

In fiscal 2010 and 2011, the General Fund received windfalls from the federal government, in the form of stimulus funds. In fiscal 2012, the General Fund enjoyed a one-time $266 million windfall as a result of past overpayments of oil and gas royalties to the Alabama Trust Fund.

With no other windfalls in sight, the lawmakers in 2012 convinced voters to allow the General Fund to borrow $435 million, payable in fiscal years 2013, 2014 and 2015.

The fiscal 2016 budget shortfall has been inevitable since at least fiscal 2010.

Rational tax reform would not increase taxes for most Alabamians. Low- and middle-income Alabamians pay more than twice as much of their income in overall state and local taxes as do those with the highest incomes, according to a study by the Institute on Taxation and Economic Policy.

The bottom fifth of Alabamians pay 10.2 percent of their income in state and local taxes, while the middle fifth pay 9.5 percent. The top 1 percent of earners pay 4 percent of their income in state and local taxes.

Alabama’s tax system is unfair to the poor and to the middle class. Commonsense reforms, such as a progressive income tax and elimination of the state-tax deduction for federal income taxes paid, would create a sustainable budget in the long term.

Lawmakers have used one-time windfalls as an excuse for delaying tax reform for too long. They should not do it again with the BP settlement.

(Published July 12, 2015)

Leave a comment

Filed under Alabama politics, Tax reform

The lesson behind the Holtzclaw-Bentley brawl

Posted: Monday, March 2, 2015 12:00 am

The Issue

A spat between the governor and a local state senator was great theater, but it underlined the often forgotten truism that we depend on a government that cannot function without adequate tax revenue.

It was bare-knuckle Alabama politics with an important lesson for Alabama voters.

In the ring were Republican Gov. Robert Bentley and state Sen. Bill Holtzclaw, R-Madison, who represents parts of Madison and Limestone counties.

The match began when Bentley announced state finances are at a crisis point, and the only solution is more revenue. He gave no specifics, but Holtzclaw immediately removed his gloves. He posted a billboard message in Huntsville saying, “Governor Bentley wants to raise your taxes. I will not let that happen.”

And then came a hard jab from Bentley, or at least from his appointed director of transportation, John Cooper, who announced he was halting state-funded road projects in Holtzclaw’s district.

“If Sen. Holtzclaw feels that strongly about taxes, he probably wouldn’t be comfortable with a significant amount of tax dollars being spent in his district as we had planned,” Cooper said.

The match ended quickly, with Bentley saying the projects would be reinstated.

“But I want to say this: We have serious problems in this state and for a state senator to be critical … before he has even seen any of the solutions, is irresponsible,” Bentley said Friday in a less-than-courteous retreat.

It was great theater, with Alabamians cheering for their favorite combatant and local officials petrified that their own loose-lipped legislators would jeopardize critical infrastructure projects.

In the midst of the drama, however, was a serious lesson.

There is not a legislator in north Alabama who did not loudly proclaim opposition to tax increases when campaigning. Any candidate who had the gall to suggest responsible tax reform as the only way out of Alabama’s financial mess would not be in office.

Which is to say that what appears to be a personal battle between Bentley and Holtzclaw is really a broader clash.

Simultaneously, Alabamians want good roads and want taxes that are among the lowest in the nation. They want the state to pump tens of millions of dollars into incentive packages for Polaris and Carpenter Technology — both in Limestone County — but they don’t want to pay the taxes that make it possible.

The state wants prisons to hold criminals, but they don’t want to pay the inevitable bill. They want strong schools, but not if it affects their pocketbook.

It’s a particularly odd paradox in the Tennessee Valley, which owes its economic vitality to Huntsville’s tax-financed employers. Take away Redstone Arsenal and Marshall Space Flight Center and the hundreds of contractors that support them, and the Valley is no longer the gem of Alabama.

There was a time when conservatism meant fiscal responsibility. It has been twisted into an anti-government ideology. As Bentley reminded north Alabama in his brief spat with Holtzclaw, government — a government controlled by the people — provides essential services upon which all Alabamians depend. If we want those services to continue, fiscal responsibility requires that we pay the taxes needed to sustain it.

Leave a comment

Filed under Alabama politics, Tax reform

‘Read my lips’ — state needs tax reform

Posted: Sunday, March 1, 2015 12:00 am

  • Gov. Robert Bentley was dishonest in his campaign, but he is right that Alabama needs more tax revenue.
It was 1988 when Vice President George H.W. Bush, a candidate for president, infamously pledged at the 1988 Republican National Convention, “Read my lips: No new taxes.”

He won the election.

Two years later he agreed to a budget deal increasing taxes, effectively sealing his fate as a one-term president.

Gov. Robert Bentley learned a lesson from Bush’s political mistake, but maybe not the one Alabamians would have wished. After four years of proclaiming a “no new tax” mantra, Bentley won a second term. The ballots had barely been counted when he proclaimed what all students of Alabama government already knew: The state needs new tax revenue.

In Bush’s case, the broken promise was excusable. He made the promise before he had served as president, and it took two years before harsh facts intruded on easy ideology.

Bentley has no such excuse. The state limped through his first term with borrowed money, one-time windfalls and increased fees. The $700 million shortfall Bentley announced in November, two weeks after the election, was not a surprise. The only shock was that a governor who prides himself on his candor would wait until after the election to be candid.

Unlike Bush, Bentley cannot pay a political price for his deception.

The temptation, then, is to punish him by rejecting his call for new tax revenue. That would be a mistake.

The GOP was convinced it could wring enough excess out of the state budget to avoid higher taxes. Bentley believed the same when he first took office, and he probably believed it well into his first term. His effort was not a failure. He streamlined several departments and took other steps that reduced the state’s expenditures.

The unfortunate reality is that Alabama cannot sustain the services and infrastructure its citizens need while having one of the lowest per-capita rates of taxation in the nation.

In fairness to Bentley and the GOP, the blame for inadequate revenue falls largely on a Democratic Party that controlled the state for 136 years. By insisting on regressive taxes that did not annoy the rich and powerful, they tried to run a state by creating a tax system that extracted money from those who could least afford it. Both as a matter of fairness and as a means to fiscal solvency, that needs to change.

Bentley’s pre-election dishonesty on Alabama’s financial plight deserves condemnation. In the process of condemning him, however, the public should recognize that the state cannot function without more revenue. Low- and middle-class residents already pay a disproportionate amount of their income in taxes. The path to responsible governance lies with reforms that — for the first time in Alabama’s history — place a greater burden on the wealthy.

Leave a comment

Filed under Tax reform

US needs open debate on budget

U.S. Sen. Jeff Sessions, R-Mobile, has been complaining for years that his Democratic colleagues would not pass a budget.

They finally did in March, and it became apparent immediately why they had not bothered to do so before.

The budgets passed by the Republican-controlled House and Democrat-controlled Senate are, of course, radically different. Legislative procedure requires such differences to be hammered out in a conference committee. In order to create a conference committee, the Senate must appoint committee members. Usually, the step is a minor one involving unanimous consent.

Not this time. Several Republican senators are blocking the appointment of committee members. Without a committee, there can be no budget.

To his credit, Sessions is calling for regular order. He demanded Democrats pass a budget, and now he wants Republicans to allow the conference committee to go forward.

Tea-party Republicans including Sens. Ted Cruz of Texas; Rand Paul of Kentucky and Marco Rubio of Florida are spoiling Sessions’ long-standing call for budget discussions. The inefficient result almost certainly will be a fifth consecutive continuing resolution, which overspends on some programs and underspends on others.

More important, the tea-party-aligned senators are preventing the nation from having an honest debate.

The budget is more than a bunch of numbers. It is a document intended to balance federal revenue and expense. Through their elected representatives, this is the time that Americans come to grip with their distaste for taxes and their desire to maintain government services. It is, in other words, the document that determines what size government America wants.

Ever since the tea party gained political prominence in the elections of 2010, Republicans have proclaimed the deficit is a result not of inadequate revenue but excessive spending. Mathematically, of course, it’s not so simple. While it is true the nation cannot indefinitely operate at a deficit, it also is true there are two ways to reduce a deficit. One is to cut spending. The other is to increase revenue.

Poll after poll demonstrates the political complexity of the issue. A large majority of Americans express their belief that the federal government is too big. Large majorities also, however, support the programs that consume most of the budget. Indeed, GOP leaders invariably fight to maintain spending for their own constituents even as they call for overall cuts.

Cruz and Rubio don’t want to have this debate. By blocking budget negotiations, they are trying to impose their inflexible desire for small government on a majority that agrees federal debt needs to come down, but wants to see details. Most Americans, according to multiple polls, suspect additional revenue must be part of the mix. Cutting expenses is desirable in the abstract, but Americans need specifics.

Sessions has it right. He properly demanded that the Senate pass a budget, but he recognizes open negotiations between the House and Senate are an important step as this representative democracy grapples with the best way to reduce debt.

Leave a comment

Filed under Conservatism, Deficit, Tax reform

Don’t blame Apple for profit

Legislators embarrass themselves when they criticize corporations for maximizing profit.
Some members of the U.S. Senate Permanent Subcommittee on Investigations last week excoriated Tim Cook, an Auburn University graduate and chief executive officer of Apple Inc., for his multinational company’s “gimmicks” in avoiding taxes.
No question, the numbers were remarkable. According to a committee report, Apple avoided paying U.S. taxes on $44 billion in offshore income between 2009 and 2012.
“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” Sen. Carl Levin, D-Michigan said. “It has created offshore entities holding tens of billions of dollars while claiming to be a tax resident nowhere.”
Cook’s job is not to maximize tax revenue for the nation, but to maximize profit for shareholders. He does so by producing products people want and selling them at a price that generates the greatest revenue. He does so by keeping costs to a minimum, a task that requires him to hire as few employees as possible, to pay his suppliers as little as possible and to pay as little as possible in taxes.
Criticizing Apple for failing to pay more taxes than legally required is just as silly as deifying it as a “job creator.” Cook’s role — the reason he gets paid millions — is to make money for shareholders. That requires him to minimize costs. If he allows Apple to pay more in taxes than the tax code requires, he is failing his shareholders. If he spends more on workers than is necessary to maximize shareholder return, he is breaching his obligation to shareholders. It may well be that Apple does not pay enough in taxes. The company benefits from the laws, institutions and infrastructure of the United States. There is nothing wrong with demanding that it pay its share in maintaining them.
The problem with senators criticizing Apple for not paying as much in taxes as they think it should is that it improperly shifts the blame. On paper, the United States has one of the highest corporate income tax rates in the world. Thousands of congressionally sanctioned loopholes and a failure to deal with multinational operations, however, make its effective tax rate among the lowest.
If Apple is paying all the taxes it is legally required to pay but not paying its fair share in the upkeep of the nation, the fault lies with Congress. The job of balancing the budget requires revenue. Congress is tasked with writing the laws that dictate how much in taxes corporations must pay. If Congress needs more revenue to meet the federal government’s necessary expenses, then it needs to make changes to the tax code.
America’s economy does not simply allow corporations to maximize shareholder profit; it depends on it. If corporate executives are doing their job, their corporations will pay only those taxes they are legally required to pay. If Congress is doing its job, it will pass laws that require every corporation to pay a fair and adequate amount.
Cook deserves neither adulation nor censure from other American taxpayers. He’s just doing his job. Rather than criticize him, members of Congress should do theirs.

Leave a comment

Filed under Capitalism, Tax reform

Internet sales-tax vote will be revealing

Alabama’s U.S. House representatives may soon cast votes that reveal much about their political philosophies.

At issue is the Market Fairness Act, which passed the Senate with support from U.S. Sens. Jeff Sessions, R-Mobile, and Richard Shelby, R-Tuscaloosa, on Monday. The bill requires most online retailers to withhold any sales taxes based on the residence of the purchaser. In Alabama and most other states, the purchaser is required to pay the taxes. Almost nobody does.

Gov. Robert Bentley, a vocal critic of tax increases and big government, is all for it. Indeed, he shepherded through a state law last year anticipating congressional passage. The state law funnels 75 percent of online sales taxes — most of which would otherwise support public schools — to the General Fund. The governor predicted the Market Fairness Act would generate $200 million a year for the state.

Arguments for smaller government — popular in the abstract — tend to meet political resistance when it comes to specifics. Both on the state and federal level, people generally appreciate the services their tax-funded governments provide.

Those who want small, weak governments — either for reasons of ideology or profit — had to amend their sales pitch. Cutting popular services didn’t sell, but fiscal responsibility and low taxes did. The movement gained political power in the 2010 elections, although its proponents have remained consistently vague about what services they will cut.

One they occasionally do mention is regulatory enforcement. As the tragic explosion of a Texas fertilizer plant made clear last month, the increased profits from deregulation comes at a public cost.

The Market Fairness Act is not about raising taxes. It merely creates a mechanism by which state and local governments can collect taxes that are legally owed. For revenue-starved states like Alabama, it is a boon to fiscal responsibility.

The bill forces lawmakers to show their hands. If their calls for fiscal responsibility are just a charade for minimalist government, they will vote against the Market Fairness Act. For them, government is the beast and depriving it of revenue starves it. And just maybe, they will at some point be forced to tell which government services they will cut. When they do, voters will have the facts necessary to determine who the cuts benefit and who they harm.

The vote of representatives from Alabama also will be revealing in another respect. As demonstrated last year when the state Legislature had to borrow money from a trust fund to continue even minimal services — a move that came after one-time windfalls bailed them out of several previous budget crises — Alabama cannot manage on existing tax revenue.

If Bentley’s $200 million estimate is accurate, the Market Fairness Act would at least delay the painful political moment when state legislators finally embark on tax reform.

The state Legislature has every reason to welcome passage of the Market Fairness Act, as do all Alabamians who depend on such services as Medicaid, good roads and a functioning court system. To vote for it, though, Alabama’s representatives to Congress would have to buck such conservative stalwarts as corporate champion Grover Norquist, Senate Minority Leader Mitch McConnell and the Heritage Foundation.

The House of Representatives vote will be consequential and revealing.

2 Comments

Filed under Alabama politics, Conservatism, Tax reform