AN ANALYSIS OF RILEY’S TAX PLAN

by John Martin
July 24, 2003

Look out! Here it comes. A huge sledgehammer is about to smash your heads! The timing couldn’t be worse. While teachers and state employees are enjoying layoff-proof careers with $40,000 salaries, frequent raises, paid holidays and generous retirements, the private sector is reeling from a recession, unemployment, layoffs, bankruptcies, lawsuits, taxes, regulations, mandates and other burdens imposed by all levels of government. Workers making $5000 to $15,000 are gladly taking reductions in their paychecks in lieu of pink slips.

Taxus Maximus (alias Bob Riley), our Emperor, has decreed that the people of Alabama must suffer the grave consequences of a “comprehensive package of reforms” that he has drawn up and snookered the legislature into passing during his infamous May 19 $300,000 special session. This package consists primarily of massive tax and spending increases, along with a few bogus “accountability” cookies thrown in to entice the voters.

It is the infamous 40 page amendment to the Alabama State Constitution that would, if passed, raise dozens of current taxes and impose new taxes of every description. The day of reckoning is September 9, and every Alabama citizen must be vigilant.

Just how dangerous is this monster? Take a look:

1. Federal income and FICA taxes will no longer be deductable from state income taxes. The people will be taxed on income that has already gone for taxes. People would be taxed TWICE. Cost: $658 million annually.

2. Deed and mortgage taxes will be doubled. Recording a deed will increase from 50 cents to $1 per $500 of property value, and mortgage taxes will increase from 15 cents to 30 cents per $100 of the amount borrowed. Cost: $44.8 million annually.

3. The sales tax on cars, boats, recreational vehicles, tractors, farm equipment, and industrial machinery will increase from 2% to 2.5%. Cost: $53.9 million annually.

4. The lease and rental tax on cars and trucks will double from 1.5% to 3%. Cost: $20.3 million annually.

5. The cigarette tax will almost double from 16.5 cents to 31 cents per pack. Cost $50 million annually.

6. A sales tax on vending machines. Cost: $1 million annually.

7. An insurance premium tax. Cost: $5.2 million annually.

8. A tax on stocks, bonds, and other "intangible" property. The rate would be $1 per $1000 of market value. Cost: $55 million annually.

9. HUGE property tax increases. Cost: $425.8 million annually (probably a far too low estimate).

10. A “sales” tax on essential services. Cost: $57.5 million annually.

Even a low property tax is hideous because it mandates that people pay “rent” to the state and local governments on their own private property. But this huge property tax is a real killer.

Riley’s amendment drops the state’s rate from 6.5 mills to 3.5 mills and increases the homestead exemption slightly--from $40,000 to $50,000, but the kicker is that all property will be assessed at 100%.

Currently, agricultural and residential property is assessed at only 10%, so even with the millage reduction, the state tax goes UP more than FIVE FOLD, and the LOCAL taxes go up TEN FOLD. Rental and business property is currently assessed at 20%. Here the state taxes go up over 2.5 times and the local taxes go up five times. Utility property is currently assessed at the maximum rate of 30% Even utilities will be hit with an 80% increase in the state taxes and a 233% increase in the local taxes.

Bottom line--everybody loses--big time. That’s everybody, including non-property owners who rent, lease, or buy any service or product from any Alabama business or utility.

Various Riley supporters claim that average home and farm taxes will increase only about $60 to $132. Dana Beyerle, a writer for Times Daily (TimesDaily.com), claims that no home (outside of Huntsville, Mountain Brook and Vestavia Hills) will be taxed more than 0.3% of its market value.

Let’s see. Let’s do the math on a typical $100,000 rural home. This example is for Elmore County, one of the lower taxed counties. The millage will vary from county to county, but the huge increases will take effect everywhere.

The current way:
$100,000 home with $40,000 homestead exemption: Taxable value: $60,000. Assessed at 10%.
State tax: 6.5 mills 39.00
County tax: 8.5 mills 51.00
"CW" 4.0 mills 24.00
School tax 3.0 mills 18.00
-----------------------------------
Total Tax $132.00


Riley’s way:
$100,000 home with $50,000 homestead exemption:
Taxable value: $50,000. Assessed at 100%.
State tax 3.5 mills 175.00
County tax: 8.5 mills 425.00
"CW" 4.0 mills 200.00
School tax 3.0 mills 150.00
-----------------------------------
Total Tax $950.00



Bottom line: YOUR PROPERTY TAX WILL GO UP SEVEN TIMES even in the rural, lower taxed counties. A $100,000 home will be hit for nearly 1% of its market value--more than three times Dana Beyerle’s claim.

And if you live in a city or one of the higher taxed counties, your tax will rise even more. Huntsville, for example, hits its people for 26 mills. That’s $1300 just for one local tax--up from $130.

Riley claims that Alabama’s current use provision for farm and forest land will be mostly preserved, at least for the smaller landowners. But that will not prevent steep tax increases. The increases are built into the assessment jump from 10% to 100%. Taxes will still soar to seven or more times the current levels.

And to put the icing on the property tax cake, Riley has thrown in a mandate for annual re-appraisals. That, of course, pours even more gasoline onto the property tax wildfire, especially when the cost of the re-appraisals is added to the tax bills.

A “sales” tax on services is just as horrible. Even though the amount is a great deal lower than the property tax, the actual cost is very high for three reasons:

a. Most services are absolute essentials--repairs on cars, appliances, homes, etc.

b. The people who perform these services are primarily low to middle-income people who can least afford any extra burdens.

c. The paperwork involved would be horrendous, both for the service providers and the state or whoever collects the taxes. This is essentially an occupational tax on the self-employed. The heated opposition to an occupational tax in Montgomery last year (and also 30 years earlier in 1972) is irrefutable proof that an occupational tax of any kind--even at 1% (1972) or 1.5% (2002)--is too much of a burden for any sane person. A statewide occupational tax of 4% is unconscionable, especially when added to state and federal income taxes.

How will this tax be paid? Some claim that it might be monthly. If that is true, every small landscaper, repairman, or whoever will have to file 12 tax returns every year. That alone would be unbearable.

Riley’s total tax cost will be $1.37 billion in EXTRA taxes every year--over and above the already too high $6 billion we are already paying. The added cost of extra paperwork and mental anguish in compliance costs could easily come to another hidden $500 million or more. It would be the most massive tax increase in the state’s history--23%.

The economic impact will be catastrophic. No business wants to suffer from excessive taxes and government. And skilled and educated people are going to flee as soon as additional government intrusions are added to their already low wages and high unemployment.

Remember the hundreds of millions squandered for Mercedes, Honda, Toyota, and Hyundai to provide collectively about 5000 jobs? If Riley’s tax package gets loose, Alabama will lose many times that number. Wallace Malone, CEO of Southtrust Bank calculated a statewide loss of 30,000 jobs. The Beacon Hill Institute estimates Alabama will lose 24,000 jobs per year along with a loss of $2.3 billion in disposable income.

The “accountability” portion of Riley’s tax package is a joke. Does anybody believe “pass-through pork” will really be stopped? If that was true, they would not be raising taxes; they would be lowering them and reducing spending. Instead, they keep passing pie-in-the-sky budgets and demanding more money. Last year was no exception.

Riley claims that the $675 million over-budgeting deficit he inherited from Don Siegelman can only be corrected with his draconian idea. BUT if he is asking for more taxes to pay off a deficit, WHY is he asking for more massive spending increases to add to it? It would be extreme just to ask for enough to satisfy the debt.

But adding Riley’s “world class” education system, “free” college scholarships, pre-kindergarten programs, and extra funding for other state agencies to the budget wildfire is absolute insanity. Riley even claims that his new tax package will attract high-wage businesses to the state. If anybody believes that, I have a bridge in New York I’ll sell him--cheap.

The solution, of course, is to VOTE “NO” on September 9. This will force the state to do what it needed to do in the first place--tighten its belt. The recklessly excessive state budgets will be cut by Constitutional mandate. This is the 18% across-the-board spending cut that has the statist doomsayers screaming.

Even then, current state revenues are expected to increase 5%. That’s still too much to provide a needed government reduction, but we can at least hold its rampant growth down to a minimum.

Even Russellville’s notorious State Sen. Roger Bedford is optimistic that Riley’s crazy idea will bite the dust. He said, “It’s running 50-50 in my district. Fifty percent expect me to kill it, and fifty percent want the chance to kill it themselves.”

Let’s make sure we do kill it ourselves.

VOTE “NO” ON SEPTEMBER 9!


John Martin writes from Elmore County.
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