Tax Revenue Issues in Alabama for 2015

Dr. Ira W. Harvey
The University of Alabama
January 15, 2015
Walt Kelly: The Pogo Papers
Walt Kelly: The Pogo Papers
The Late Unpleasantness
The War of Northern Aggression
The Lost Cause
The War Between the States
• The excesses of taxation, spending, and
debt during Reconstruction (Constitution
of 1868) created a demand for a new
constitution in 1875.
• This new constitution would enroll
restrictions on taxation and debt that
would be carried forward into our present
Constitution of 1901.
Conservative government returned to the State of
Alabama in 1875 with a new constitution. Taxation was limited,
expenditures were reduced, and state government attempted to
settle the debt that had resulted from the period of
Reconstruction. The state had been bankrupt since 1872, and
the excesses of Reconstruction paved the way for return of
power to the white population. The "Conservative
Constitution" of 1875 also provided a modern mandate for
Alabama's public school system:
“The General Assembly shall establish, organize, and
maintain a system of public schools throughout the State, for
the equal benefit of the children thereof between the ages of
seven and twenty-one years; but separate schools shall be
provided for the children of citizens of African descent
(Constitution of 1875, Article XIII, Sec. 1).”
By placing constitutional limits on taxation of
wealth and income in the Constitution of 1901,
the revenue problems created for state and local
government peaked in 1969.
State leaders wanted modern improvements in
infrastructure and education.
The only path for new revenues was that which
was not prohibited by the Constitution of 1901.
This path was statutorily implemented by the
“I like to pay taxes. With them,
I buy civilization.”
Oliver Wendell Holmes (1841-1935)
Is expanding the tax base and/or
increasing the tax rate then applied
defined as a tax increase?
Is expanding the tax base by
removing tax exemptions, credits
and abatements defined as a tax
• A tax expenditure program is government spending
through the tax code. Tax expenditures alter the
horizontal and vertical equity of the basic tax
system by allowing exemptions, deductions, or
credits to select groups or specific activities. This is
a cost to state and local government revenues.
– In public finance horizontal equity is the idea that people with a similar ability to pay taxes
should pay the same or similar amounts. It is related to the concept of tax neutrality or
the idea that the tax system should not discriminate between similar things or people, or
unduly distort behavior.
– Vertical equity usually refers to the idea that people with a greater ability to pay taxes
should pay more. If the rich pay more in proportion to their income, this is known as a
proportional tax; if they pay an increasing proportion, this is termed a progressive tax.
1976 Nobel Prize winning University
of Chicago economist Milton
Friedman and others
1. Total state revenues are not increased;
therefore some programs would experience
2. Why was earmarking deemed important
when it was implemented?
3. Are there any significant examples of
current tax revenue earmarking leading to
overfunding of programs?
4. And, Abramson v. Hard
Public Education in Alabama is a non-essential
function of state government.
Deficit spending cannot occur under the provisions
of Amendment 26, Constitution of 1901.
Appropriations must be reduced pro rata when there
is a revenue shortfall.
Essential functions must be paid in full; then nonessential functions suffer all shortfall by proration.
Education would suffer discriminatory proration as a
part of the General Fund (GF).
1. “Public” has been removed from our
Constitution of 1901 (Amendment 111)
2. Exactly what items of appropriation are
included in the published share for Higher
Education, K-12, and Other (the split)?
3. Are there reputable national studies
which have concluded Alabama spends
too much on education?
Alabama continues
trend, receives F for
higher education
spending. Birmingham
Business Journal,
Jan 7, 2015, 7:41am CST
1. Does Alabama have a revenue problem?
2. Does Alabama have a spending problem?
3. In accordance with Amendment 26 (Warrant
Amendment of 1933), how will the Governor
submit and the Legislature approve balanced
budgets? (Amendments 212 and 225 and §40-18-15)
4. Should Alabama totally unearmark all
5. Should Alabama only have a General Fund
6. How should Alabama evaluate adequacy of
program funding for state purposes?
Henry Louis Mencken

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