The present tax system is evil and stupid. This article is merely a defense of a tax regime that I consider less bad than many of its alternatives. Ultimately, the poor will have to help themselves. FULL ARTICLE by Christopher Westley
Source link: http://archive.mises.org/13141/how-bad-is-alabamas-tax-structure/
How Bad Is Alabama’s Tax Structure?
Previous post: Vince Miller and the International Libertarian Movement
Next post: Hayek on the Anti-Liberal Timber
{ 28 comments }
When I was working for Governor Fob James of Alabama I was asked to study the tax situation in Alabama. Were taxes too low in Alabama? I found that government spending (using various measures) was higher in Alabama (per person) than in the surrounding states. Were taxes “unfair”? What I found was that the state income tax started in the 1930s but had no provision for inflation so that the income tax was intended to tax the well-to-do people, but now taxed virtually everyone, including the poor. I suggested that they use all increases in overall revenues to increase the personal exemption each year until no one paid income taxes making less than the intended income level of the original legislation (somewhere around $100,000 when adjusted for inflation). This way everyone would get a small tax cut without having to raise other taxes. I was told that the government employee unions would never allow that. I believe that government employees in Alabama receive incomes above the medium income. Is that fair?
“I was told that the government employee unions would never allow that.”
I can summarize the situation with one word – gangsterism.
The only fair method of taxation, if you could use such a word, is to tax the poor as heavily as possible and the wealthy as little to not at all. If such a system is insisted to exist, if for some odd reason straight out of a nightmare fantasy novel a social services system must exist, then it is the poor who should be fully burdened to pay for it. Why? It’s becuase it is the poor that overwhelmingly uses such services. Those who are not poor rarely use tax funded services.
If elimination of public services is somehow out of the question, then only those who use the services should pay for them.
I disagree. The most fair method would be a land value tax, with services tied to revenue…because a LVT is the least distortionary of all taxes.
with an LVT tied to services, areas with ‘quality government’ — such as that mentioned by Todd below — would quickly appreciate in value, causing a positive feedback loop: the higher revenue from higher valuations (higher demand to live there) would lead to a lower tax rate, which would lead to higher property values, etc.
Areas with lousy government (like IL) would see a negative feedback loop, with lousy government services leading to declining property values, which leads to lower revenue, which leads to even worse government.
Eventually, bad government areas, like Detriot, end up becoming worthless and become an attractive purchase for a redeveoper.
That makes little to no sense. When higher income individuals are not taxed for services they do not use, there isn’t much concern to where they live. A more likely scenario will result in living choices made around environment and weather, not around how the local government operates because the wealthier you are, the fewer services you utilize, and the less the government means to you. Neighborhoods won’t me any more or less segregated around income levels than they are today.
High service areas are already undesirable places to live. The simple reason being those who engage in such services are disconnected from the general concept of ownership. When things are provided for free, then the property and services are not respected. This contributes to disrespect of others and their property, leading to crime and violence.
There is no such thing as a quality government, just differing degrees of intrusiveness and waste. Poor areas remain bad areas despite not utilizing the method I’ve just proposed. The poor disproportionately utilize police, fire, health, and other social services yet those services are primarily paid by those who don’t use it. It seems that your hypothetical negative feedback is a reality under the system where the wealthy pay for the services of the poor.
At the very worst, forcing the poor to pay for their own government services in their entirety will result in status quo. In fact, by making the users of services shoulder the full burden of those services, the quality of those regions would likely improve as the sense of ownership would slowly adjust the tainted culture created by the rich-give-to-poor welfare system we have today.
If it doesn’t make sense, then you misunderstood what I said. The desirability of a location is directly correlated with the quality of a local government. It’s not the amount of services provided, but the quality of those services in relation to revenue.
A desirable area could be a city that DOESN’T offer public school, or a city that MANDATES gated communities (to save on tax dollars), or PRIVATIZED its roads.
You are correct in that there are differing degrees of intrusiveness and waste, and that’s what I mean by quality. A ‘quality’ government limits waste and intrusiveness, while a low-quality government does the opposite.
You’re crazy if you think only the poor use services. Government heavily subsidizes middle class and upper middle class citizens with public schools, roads, highways, parks, etc etc etc. public colleges are a direct subsidy to the upper middle class. And that’s only at the state/local level. Most federal programs subsidize the middle and upper middle classes. Social Security and Medicaid go the wealthiest segment of society: seniors. The wealthy write regulations to stifle the competition.
The poor don’t get much more than an institutional learning facility and an intrusive police force.
“High service areas are already undesirable places to live. The simple reason being those who engage in such services are disconnected from the general concept of ownership. When things are provided for free, then the property and services are not respected. This contributes to disrespect of others and their property, leading to crime and violence.”
Actually, businesses prefer relocating to areas where there are high quality services provided. That means they can attract better employees, who prefer to live in places with good schools, good libraries, good roads and good local government. This has been shown in surveys on what qualities a corporation values most when it seeks to relocate.
In contrast, Alabama has one thing only: low taxes and no services. That’s why apart from the Huntsville area, with its high tech industry spawned by a proximity to Oak Ridge, the place is shunned by most reputable industry. To be fair, it does absorb quite a number of high-polluting industries with its near-total absence of environmental requirements. But these tend to employ the prison class– people so desperate they’re willing to do dangerous, dirty jobs at ultra-low pay. You can find this kind of thing in the Iron Belt, around Anniston and Montgomery. (Surprisingly, poor folks in AL don’t all get 30K a year in benefits, making it not worth their while to work. They work hard to stay poor down there.)
That and timber. Timber essentially owns the state, so pays few taxes to support it. It pays, for instance, no property taxes on the land while being the state’s largest landowner. This kind of thing leaves Alabama near the bottom of the states in nearly every category one would consider when moving. Except, of course, taxation. It’s what you would expect from a low-tax, low-services state: cheap, poor and dirty.
Alabama sounds like Nevada: a low-tax, low-class, poor service state.
I moved from the crime ridden cesspool of Las Vegas to the Colorado Front Range (I live in between Denver and Colorado Springs), and its a world of difference.
Colorado spends about 3% more per capita than Nevada, but it provides FAR more in services: excellent schools, compared to bottom-five Nevada, low crime, abundant high-paying jobs, pristine public parks and nature preserves, good roads, etc.
I think Colorado is the example for the nation and probably provides the most bang-for-buck of any state in the US. Its probably due to the TABOR laws here (taxpayer bill of rights) that make it unconstitutional for the state to increase spending faster than the rate of inflation x population growth. Some cities and counties (like Colorado Springs) have their own TABOR.
The state is forced to be efficient. For example, the newer beltway freeway around the South, East, and North sides of Denver is 100% electronic toll.
Full agreement. The Front Range development zone is the perfect example of a region that’s doing everything right. Quality of life in Loveland-Fort Collins is as good as anywhere in the nation. The cost of living, including taxes, does not exceed incomes, which must be near the top for currently dynamic metropolitan regions. It’s a place you’d want to live in, with good schools and efficient local government services.
I’d pay extra to live there. Especially if choice number two was to live in Alabama.
Mike — I agree that Loveland/Fort Collins is fantastic. But I have a broader definition of the Front Range, in line with what’s referred to as the Front Range Urban Corridor. The FRUC is everything between Pueblo, CO and Cheyenne, WY, about 200 miles (about the same distance as the area between New York and Boston). Some consider Albuquerque in the Front Range, but its a good 250 miles south of Pueblo (Santa Fe is 200 Miles S of Pueblo), with nothing in-between. You’re talking about 4 million people and a $225B GDP — $56,000 in per capita GDP, Higher than any other megaregion in the US. Adjusted for cost-of-living, no other region in the United States is as affluent and economically vibrant (with low crime and excellent schools). Colorado is also the healthiest state in the United States (lowest obesity rate). Colorado has a flat tax at 4.8% (and very low property taxes) and Wyoming doesn’t even have an income tax.
Ryan McMaken Presented a paper at the Austrian Scholars’ Conference about 5 years ago on Colorado’s approach to governance.
http://mises.org/pdf//asc/2004/asc2004mcmaken.pdf
Colordo and Wyoming are resource-rich, with coal, gas and uranium deposits. That makes it possible to offer first-quality services and low tax rates together in one package. Admittedly, Alabama’s not so blessed in natural riches. So they’ve had a more limited menu of choices before them.
Now let’s take a look at Governor Bob Riley. A staunch Republican, he was nonetheless dismayed to be running a two bit state where the schools were bad, the roads were bad, health care was bad and the water was bad. And even more dismayed to be running a bare-bones government with little income and no services, while still facing a projected $675 million budget shortfall back in 2002. So he decided to do that thing no Republican dares to do: recommend raising taxes.
Particularly on land. Timber, the most lucrative industry in the state, had been getting a free ride by paying no land taxes. But also cigarettes, sales and a number of other taxes. He went on the air to explain to the people that they had a choice to make: either remain a third rate place to live and pay few taxes on their meager incomes, or to go uptown by becoming a modern state with a pallette of services, like decent schools, water and sewage treatment, etc, just like the big boys. And attract more good paying jobs.
That activated the Wing. The local business interests whipped up a fear campaign and frightened Alabamians into stampeding. Governor Bob was defeated two to one in the next election.
They prefer being poorly educated but free, with no intrusive government to bother them. They feel quite strongly, as a rule, about the Bible, guns and the flag. And in terms of median income, they come in 46th among the states. Not too shabby… they’re ahead of Kentucky, Arkansas, West Virginia, Mississippi and Puerto Rico. Anyone sharing their values would be well advised to move there.
There is a fallacy here, assuming that the target of government spending is the user. The poor are not the users here, since the main purpose is to head off the problems of having a lot of poor around, Vagrancy Costs that encourage crime etc. and increase policing costs; that makes the people as a whole the users here. That is why the Elizabethan Poor Law was brought in, and why Bismarck started a welfare state approach. I discussed it here, in which I spelled out the problem of properly identifying the users:-
The only workable way I have come across of making the poor themselves participate is the approach used in certain colonial situations, where there was a poll tax that the poor could pay off in low paid forced labour that they could live off.
You are out of your mind, J. Murray. How do you expect the poor to rise above poverty if a.) you consistently lobby against living wages, b. you lobby for regressive taxes system so they are taxed more than wealthy persons. How on earth did you come to the conclusion that wealthy people do not benefit from, use and exploit what our tax dollars provide? They get limited liability, cheap labor, exponentially more political power, hundreds of billions in corporate welfare on the backs of the poor and middle class. Political power gives them policys that increase short term gains (profits) while eating away at America’s insfrastructure (Labor Market, jobs over seas). Poverty has been linked to high social service costs because people under stress commit crime, neglect children, etc. which results in a multi billion dollar prison racket? And you wish to perpetuate this insanity by rewarding exploitation of the poor? My goodness, wake up!
I fondly remember my property taxes in ‘Bama ($350/year) and my low state income tax. I now live in Illinois and pay around $6000 per year for a similar house. In Bama, regular people could afford to send their kids to private school and get the kind of education that they wanted. There wasn’t a heavy police saturation (only 2 State patrol officers on duty at night, I believe). How I miss and love that state. Almost as much as I loathe Illinois.
“If elimination of public services is somehow out of the question, then only those who use the services should pay for them.”
This is called “purchasing” or “subscribing” – no coercion needed.
But the whole point of taxes is really wealth redistribution…
Bingo. Though it would be more of a poverty tax, punish people for living off government services, which would be the quickest way to convince people to get rid of government services.
As a libertarian, I have no problem with voluntary collective services:
Make all taxes come from land value taxes with rates universally agreed to by property owners.
Please see my posts on this subject, based on Thomas Jefferson’s writings on ‘ward republicanism’ — I explored the question of whether government can be consentual and how such a voluntary system could be implemented. The key is to follow Jefferson’s ‘ward republicanism’ concept, which I’ve also posted a link to.
http://crwl.blogspot.com/2007/12/can-government-be-consensual.html
http://crwl.blogspot.com/2007/03/thoughts-on-land-value-taxation-lvt.html
http://crwl.blogspot.com/2007/03/confederation-of-confederacies.html
Keep in mind that public assistance is a back door subsidy to big business. Grocery stores derive a significant portion of their income from food stamps (now called SNAP). When services are available for citizens paid below a certain threshold, they do not need to be provided by the employers. Funds don’t just disappear in the hands of the poor. They continue moving through the economy and artificially support some sectors.
One of the biggest hurdles faced by any head of household trying to get out of the public assistance grind is the no-mans-land between making enough to no longer qualify for assistance and the level of income needed to replace those lost services. Improving income is often a huge risk. Nonetheless, people do it all the time.
Not just a subsidy for income, but also for paying employees, since it pushes wages down as people are willing to work for less and make up for the rest via government welfare. If only the poor people were merely milking the system; with the dead zone, once they’re in the trap, they can work harder and make more gross income, but not see any increase in net income. Major disincentive.
That’s why I have suggested engineering out those problems with structural changes like the tax/subsidy approach described by Professor Kim Swales of the University of Strathclyde and his colleagues (in the UK), and by Nobel winner Professor Edmund S. Phelps, McVickar Professor of Political Economy at Columbia University (in the USA). I myself have done a game theoretic analysis of aspects of these proposals (in Australia – see this and following, or this).
Don’t tell J. Murray that — he thinks that government spending only goes to the poor
Are Taxes Beneficial? – Alabama Case Study.
Taxes are only acceptable if they are the best means to attain the ends chosen. With the current system of government it is the ego-driven interventionists who arbitrarily pick the ends and then they do not examine any other means to attain those ends.
In other words taxation will exist as long as we are stuck in this obsolete system of government (not to imply that this corrupt system of government was ever state-of-the-art).
The article is incomplete from only looking at the poor and not the employers, i.e. the supply and not the demand for labour.
I appreciate this informative article. Thanks.
A family of four living on $12,700 is not poor per the Alabama classification? That is incredible. Keeping a roof over their head and food on the table would be nigh impossible. While one might try to defend the overall Alabama tax structure, there is no way to defend this cut-off. Shocking!
Thanks for give this informative post here, I like it and will share with friends as well.
Property taxes in Alabama are among the lowest in the nation. So where are we going wrong with education and health for Alabama to be again… among the lowest. We pay less taxes as resident land-owners, yet supposedly we spend more per student for education than most states. It all just doesn’t add up. Increase our taxes?? NO!!! That’s just more wasteful spending by the officials we elect. It all starts with us.
Comments on this entry are closed.