Attention Conservation Notice: This begins with a note about Alabama politics, then discusses equitable taxation in general, mentioning Winston Churchill.
Today the Alabama legislature’s Republicans are expected to rally (for the fourth time this session) around the medieval principle of “might makes right” — especially its fiscal corollary: that the state should tax heads, but wealth should be tax-exempt.
In brief, taxes are for little people. So the state tax on groceries will survive another challenge today, in order that a state income tax shelter for the super-rich can be saved. (Prior posts are here, here, and here.)
This is an ancient principle that keeps democracy in check: Peasants pay taxes. Castles are exempt. Corporations are modern-day castles. Continue reading →
So today the real Americans turned out en masse to protest “socialism,” government spending, middle-class tax cuts, taxes (period), and the election of a Kenyan Muslim as president of the United States. Not that we’re racist or anything. Just patriotic. You can tell by our “Don’t Tread On Me” flags and our use of Boston Tea Party symbols.
I’m not a fan of conspiracy theories. Still, these rallies remind me of past controversies (flag burning, the pledge) that have commanded media attention and stirred public passions without any practical result — except a widening of the gulf between Americans. It’s not hard to believe these episodes are designed — not by some central planning board, but by some one or other of the interests in favor of maintaining a shrunken, disunited electorate in a perpetual state of mild panic. The more we cut ourselves off from each other, the easier we are to control.
The cant about “socialism” is both deeply felt and absurd on its face. No one knows what effect the so-called stimulus measures will have on the economy. But Republicans in Congress have determined that no matter what happens, they can oppose the measures without fear of consequences. Even if the measures prove effective in hindsight, their effect will be gradual and difficult to separate from the effects of other events, both planned and accidental; therefore easy to obscure. If the economy comes roaring back in as little as five years, the Republicans will simply chalk it up to the virtues of the American people, which managed to bring us out of recession despite the stultifying effects of Big Government. And Democrats will fall over themselves to design a nice new tax cut before the other party beats them to it.
That’s assuming that we, the people learn nothing from our experiences with scarcity except fear and resentment. It’s a safe bet, if one I would prefer to lose.
In our panic, we seem determined to defend the Western tradition of taxing cottages and hovels while exempting palaces and castles. In uncertain times, you see, we peasants can take a modicum of comfort from the thought that our lords’ estates are still intact.
Working men’s dollars are to be taxed when earned and taxed when spent. Every dollar must be taxed; even pensions from the government are to be taxed upon receipt. But the earnings of our betters must be zealously guarded from “double taxation” lest our civilization come crashing down.
Update: The evening news reports sixteen tea parties in Alabama today. Probably the largest of these was at the Hoover Country Club in metro Birmingham. Like the other “grassroots” events, this one was star-studded and drew surprisingly attentive media coverage (including syndicated radio celebs Rick and Bubba, “the sexiest fat men alive”). Degree of Madness has the details.
The opposition was almost uniformly Republican. Their complaint was that the bill would unfairly penalize rich taxpayers by removing the state income tax deduction for federal income tax payments — a loophole that has been closed in almost every other state in the nation. The bill’s author, John Knight, offered to phase out the deduction over three years rather than eliminating it at once, but that wasn’t enough to bring the bill up for debate.
Due to a bizarre rule in the Alabama Legislature, two thirds of House or Senate members must approve a “budget isolation resolution” (BIR) before any measure can be brought up for debate. It’s because of a 1984 constitutional amendment that tried to force lawmakers to come up with a budget early in the legislative session, before handling other business. The amendment requires a two-thirds supermajority to approve consideration of any measure except the budget. In practice, this has given lawmakers an extra stalling tactic, as it takes the support of two-thirds of members just to open floor debate on any bill. The BIR has become a routine piece of business. And the budget still gets put off until the last days of the session, when it gets finished at all without a special session.
The bill to repeal the state sales tax on groceries is scheduled for another hearing in the Alabama House — on April Fool’s Day. It’s a popular and fiscally responsible bill. For one thing it would reduce the state’s over-reliance on excise taxes, which are the first to sink whenever the economy does. For another, it would reduce the tax burden on poor citizens, replacing the revenue by closing a loophole for taxpayers in high income tax brackets.
Here’s what H.B. 116 will do:
Eliminate the 4% state sales tax on groceries. (Local sales taxes are not affected.)
Prevent local governments from raising revenue by taxing grocery sales only.
Raise the income tax threshold for a family of four to $20,000 a year (so those who earn less will owe nothing to the state).
Eliminate an income tax deduction (viz., the state income tax deduction of federal income tax payments) for taxpayers earning more than $200,000 a year, or married couples earning more than $400,000 a year.
Reduce the same income tax deduction on a sliding scale for taxpayers earning $75,000 to $200,000 a year, or married couples with $125,000 to $400,000.
Retain the income tax deduction for taxpayers earning less then $75,000 a year, or married couples earning less than $125,000 a year.
The bill will have to be approved in a statewide referendum before taking effect.
The Legislative Fiscal Office calculates that the bill will be “revenue neutral,” neither increasing nor decreasing state revenue. Yet it will reduce taxes for more than 90 percent of state taxpayers.
Alabama and Mississippi are the only two states that tax all grocery sales.
Last time I checked, Alabama was one of only two or three states that allowed a deduction of federal income tax payments from state income tax.
When the bill first came to the floor last week, its defeat was blamed on lawmakers who carry water for the Alabama Farmers Federation (Alfa), the powerful lobby for large absentee landowners. But according to an email on the Alabama Arise mailing list, quieter but no less determined opposition is coming from limited liability companies (LLCs), a type of business that enjoys the limited liability of corporations, plus income tax advantages. For instance, LLC owners have the option of “pass-through” taxation, where income and deductions are reported on owners’ personal income tax returns, but the business itself is not taxed.
So organizing as an LLC can been an easy way to get the legal protection of corporate status while avoiding corporate income tax. Closing the personal income tax loophole might make that strategy less lucrative for wealthy Alabamians with LLCs.
If you live in Alabama, call your representative and tell ’em to support H.B. 116, the Tax Fairness Amendment. To find out who represents you, go to the Alabama House home page and click Find Your Rep in the left-hand column. You can use your ZIP code.
Today the Alabama House of Representatives holds floor debate on the grocery tax bill. That’s H.B. 116, John Knight’s bill to eliminate the state portion of sales tax on groceries, making up the difference by eliminating a state income tax deduction that benefits those who pay a high federal income tax rate. In other words, it takes from the rich to give to the poor, which means that despite the bill’s popularity and good fiscal sense (reducing the state’s over-reliance on excise taxes), its passage is by no means assured.
Also today, the board of trustees responsible for the PACT program (Prepaid Affordable College Tuition, discussed earlier) are meeting to determine just how badly they miscalculated by betting on the stock market. The trustees’ decision on whether to honor their implicit commitment to PACT contract holders will be momentous, and they may be unable to do anything more than postpone it.
The PACT program has no good options. To meet its obligations to contract holders, it will have to raid other areas of the strapped state budget, assuming the Legislature cooperates. But the worst option would be for trustees to wriggle out of their obligations to PACT contract holders by lawyering the contracts to death. Besides inviting lawsuits, that stand will effectively bar a large number of young Alabamians from college. It will also send a message to the public that when the State of Alabama says it will do something, that doesn’t mean it will do it.
When Lenora Pate ran for governor, she quipped that if Missouri is the “Show-Me” State, then Alabama must be the “Make-Me” State. The government here has an amazing capacity for failing to do the things Americans expect of state governments as a matter of course. It even falls down in its constitutional duties — until a federal court steps in and forces the state, after lengthy litigation, to comply with federal law.
The state motto, Audemus jura nostra defendere, is usually translated “We dare defend our rights.” In light of Ms. Pate’s comment, I’ve wondered whether a more idiomatic translation might be “Bet you can’t make us.”
(P.S. John Archibald has proposed that the state Capitol adopt a different motto: Caveat emptor.)
About 60 percent of taxpayers hire someone to do their income taxes. But tax preparers often make mistakes or give bad advice.
Anyone can open a tax-prep service. No special knowledge is required, and only three states require licenses (California, Maryland, and Oregon). H&R Block and Jackson Hewitt do require their employees to undergo training. At other shops, employees sometimes don’t even know what to do with supplementary tax forms.
Tax preparers often pad the bill with “junk fees” like an “application fee” or “document preparation fee.” You shouldn’t have to pay these.
The biggest rip-off of all is the “refund anticipation loan.” Customers often get the idea that this is free money that will be paid off by the amount of their refund. Truth is, the tax-prep shop charges interest on the loan, at rates comparable to the steep charges for payday loans and similar rip-offs. If you accept the loan, you’ll have to fork over up to 25 percent of your refund.
Source: “Is that tax preparer really qualified?” Consumer Reports, March 2009, pp. 12-13.
I may never forgive Don Siegelman. His election as Alabama governor in 1998 raised hopes for our demoralized state’s future — hopes that were plainly and movingly expressed in an essay that I’ve saved for nine years. It’s called “Selma, Alabama at 4 A.M.,” and it’s by a guy named Will Bevis from Gadsden. (I’m glad to find them both online.)
In a word, Siegelman dashed all those hopes. I worked for a non-profit in Montgomery during his term in office, and I’ll spare you the experiences that generated my lasting antipathy toward Siegelman. It’s enough to say that Siegelman’s only virtue was his intelligence, and he used that to compound his vices. He was most comfortable keeping secrets and operating in back rooms, and he both mistrusted and feared the electorate — especially after the voters rejected his warmed-over lottery scheme, copied from Georgia’s Zell Miller.
I remain convinced that Siegelman regarded the governor’s office as a stepping stone to the U.S. Senate. Here, too, he was just copying Miller, and once that train went off the tracks, he lost interest in Alabama’s affairs. He understood how the state government is structurally flawed in ways that every other former Confederate state has repaired, and that Alabama desperately needs to repair. But because governing well was less important than his own career prospects, he just couldn’t give a damn. Even Guy Hunt, the country preacher who was elevated to the governorship by a political fluke back in 1987, had been able to stir himself to attempt more in the way of reform than Siegelman dared to. Don’s do-nothing ways compare with those of his immediate predecessor, the clownish Fob James. It was his Republican successor, Bob Riley, arguably our most conservative governor in modern times, who persuaded the legislature to pass an income tax reform bill backed by Alabama Arise — a bill that “liberal” Siegelman wouldn’t even read.
So I often dispute with my liberal friends over the conspiracy theory that Siegelman’s conviction for bribery and mail fraud was a set-up arranged by Karl Rove and his henchmen. (The Wikipedia article on Siegelman is devoted to little else.) Siegelman’s character is fully capable of this kind of misconduct, the evidence for a conspiracy is thin, and I believe the reaction in his favor is due far more to suspicion of anything coming from the Alberto Gonzales Justice Department than to the actual merits of Siegelman’s case.
Seems likely that it’s bad news for Siegelman that a Democrat will head the next presidency, as he won’t be able to credibly play a martyr to federal power for much longer. But I admit that my feelings are biased against the man and I’m pleased to see him jailed, whatever the reason. I believe he squandered his time in office, and betrayed the hopes of millions, in a vain attempt to make the governorship serve his personal ambitions.
I just want to record an insight on politics from a discussion with our favorite American in Italy. (Call him Giacomo.) It is this:
Americans, taken by and large, are compassionate as long as they don’t have to talk or think about “compassion.”
“Compassion” is fuzzy-headed, ineffectual, improvident, and invites all kinds of trouble. It symbolizes vulnerability to lazy, dishonest, even cruel people who’d rather live off of others than contribute. People like that really make our blood boil. This is why some of us still resent “welfare” without realizing that it no longer exists.
This attitude also contributes to our vague sense that it’s always good to reduce taxes and spending. But few of us are ideologues about it. We’re willing to use government to help the poor, sick, and weak. It makes sense to do this, as long as it’s done right. Just don’t tell us it’s the compassionate thing to do.