Insight

There are few states that take a tax code more seriously than Alabama. Which is why Alabamians, especially those who make our laws and oversee our economy, should read and consider what Huntsville native Sarah Beth Coffey has written in "Doing Better: Progressive Tax Reform for the American South." It was recently published by the Center for a Better South, which describes itself as "a pragmatic, non-profit think tank dedicated to developing progressive ideas, policies and information for thinking leaders who want to make a difference." (Check them out at www.bettersouth.org.)

In the book, Coffey sets down 11 ideas that she feels would make things better for states and people down in Dixie. Most of them, in one way or another, apply to Alabama.

However, what Coffey asks us to consider is not just the same stuff reformers have been considering in recent years.

Which is good, because much of what reformers have been considering so far doesn’t have a snowball’s chance in hell of becoming law.

You know why.

Today, those financially enhanced by Southern tax codes possess the will and the resources to take down most anything that would alter the system. In Alabama, the principal concern of these individuals and interests has been protecting the privileged status that property enjoys in the state. Any effort to change this, given the strength of the opposition and the constitutional protections involved, is pretty well doomed from the start.

Which makes one think Coffey had Alabama in mind when she compiled her list, for only one item could be applied to Alabama’s property tax situation.

The other 10 focus on things Alabama has a better chance of doing— or, in a couple of cases, has already done. She presents proposals for income tax reforms, including "modernizing the income tax brackets," which we enacted during the last legislative session. Other suggestions — like closing corporate loopholes and strengthening accountability — are regular items on the agenda when the Legislature meets, and in both some progress has been made.

However, of all the things she proposes, the one that may be of the most use to Alabamians who really want to "do better" concerns the sales tax.

Alabamians are of two minds about sales taxes. Most of us agree that sales taxes are regressive because they fall heaviest on the poor. At the same time, a sizable segment of the population believes that sales taxes are fair because "everyone pays them."

In Alabama, however, not all of us pay them — at least, not always. Today a sizable hunk of the buying and selling that goes on in this state goes on untaxed — exempted largely by legislative statute.

Now, we have all heard how a mother pays a sales tax on the formula she buys for her baby but a cattleman pays no sales tax on the formula he buys to feed a calf. That example is always sure to raise the indignation level in any audience, but only once in recent years has there been much discussion of what to do about it.

Back in 1999, when our state was facing shortfalls that threatened essential services, legislators frantic for new sources of revenue began looking at sales taxes. First, someone suggested that the levy be temporarily raised to get us through the crisis. But even our most hard-hearted legislators could not stomach the idea of increasing the burden on those who were already hurting. Then someone suggested that folks in Montgomery should investigate sales tax exemptions.

Some did. And this is what they found.

Over the years, the Legislature had granted exemptions that, if set aside, would have brought in close to $1.3 billion — more than enough to carry the state through the crisis and beyond.

Of course, no one rushed out and demanded that the state do away with exemptions willy-nilly. Around $45 million of that figure came from exempting prescription drugs, which was politically untouchable.

Most of the remaining lost revenue came from exemptions to agriculture, industry and certain services.

These are the exemptions that the author of "Doing Better" feels the state should reconsider.

But how to do it?

One of the important things about this book is that instead of pounding readers with theories and plans, it carefully lays out the problems and points to alternatives that might or might not work in a particular state. Solutions are left to those "thinking leaders" for whom the book is intended.

What Coffey suggests is that legislatures should "broaden the sales tax base" by eliminating exemptions that serve targeted audiences rather than the needs of the state as a whole. In other words, cut out special-interest sales tax breaks so that more sales are taxed. This would give states additional resources with which to work and enable legislators to lower the tax on most sales so that the system is fairer. Thus, while some would find themselves paying more taxes, the majority would see sales taxes go down and state services improve.

And which activities and interests might lose their exemptions?

Well, in Alabama, industry and agriculture enjoy a host of sales tax breaks, exemptions and reductions. So do the folks who sell automotive vehicles, truck trailers, semi trailers, mobile homes, etc.

According to Coffey, "thinking leaders" should consider these exemptions in the light of state needs and determine which would stay and which would go. They should also reconsider the much-touted "sales tax holidays," a political gimmick according to some, which really saves the consumer little and costs state and local governments a lot. (There is evidence to suggest that consumers got a better deal from previous back-to-school discounts and sales, which retailers no longer offer since they have the "holiday" to attracts customers to their stores.)

She also suggests that the sales tax base be broadened to include Internet sales and the sale of services. It is estimated that Alabama loses between $179 million and $279 million a year by not taxing e-commerce and over half-a-billion dollars by exempting services — of the 168 services taxed in the United States, Alabama taxes only 37.

Therefore, states should get rid of all sales tax exemptions that serve narrow interests. If it is not good for the state as a whole, let it go. Instead of exempting calf formula and taxing baby formula, tax both, but at a lower rate.

If done right, this would give states additional and much-needed revenue. It would simplify the tax code and make it less costly to enforce. And it would enable the Legislature to pass a sales tax cut that would help citizens far more than special-interest exemptions have.

But can it be done? And should it be done?

That is something for "thinking leaders" to think about.

Harvey H. (Hardy) Jackson is a history professor and head of the Department of History and Foreign Languages at Jacksonville State University. He is also an editorial and op-ed writer for The Star. He can be reached at hjackson@jsu.edu.