Riley pushes plan
Published 12:00 am Saturday, July 12, 2003
Editors Note: This is the first in a multi-part series on Gov. Bob Riley's tax and accountability proposal that will be voted on Sept. 9 in a statewide referendum.
&uot;I give the governor a lot of credit for the gumption he's shown,&uot; Jerry Carden told the Troy Exchange Club Thursday.
By &uot;gumption,&uot; Carden, a Troy certified public accountant and a certified financial planner,
was talking about Gov. Bob Riley's initiative in moving a $1.2 billion tax and accountability package to state-wide referendum on Sept. 9.
&uot;In every state or jurisdiction where income is taxed, the wealthy pay a disproportionate share of taxes,&uot; Carden told Exchangers. &uot;The basic question is do you want to continue to fund essential government services.&uot;
With Alabama staring down the barrel at a $675 million deficit next fiscal year, many say Riley took the bull by the horn, slashing government spending and excess - such as selling 500 state automobiles and cutting staff and other expenses - by some $230 million in his first four months in office.
Riley sent a broad-based initiative to the Legislature, asking legislators to place before Alabama voters a referendum before establishing a budget for the next fiscal year.
&uot;Another real reason I supported the package,&uot; said Sen. Wendell Mitchell, &uot;is that in the several terms in the Legislature I've served, I have never seen an administration - either Democrat or Republican - propose anything but a band-aid approach to our broad-based problems. This governor came forward with a proposal that should remedy our ills for a long time to come.&uot;
Mitchell, however, said he told the governor, &uot;as I will tell any of my constituents,&uot; that the action the Legislature took in passing Riley's package is considered by him to &uot;be a long-range solution, and I will, therefore, oppose any and all efforts to come back to Alabama citizens for more money to solve the same problems.&uot;
Coming back to the tax coffers is something Mitchell and others think can be avoided with the tax and accountability package.
Carden, who calls himself a Republican who supported Riley, said to the Exchange Club everyone had to make their own choices about supporting the plan: &uot;Some of you have made up your mind - you're either for it or against it, but there a lot who haven't decided yet.&uot;
The tax side of the package includes increases in seven areas: personal income tax, property tax, corporate income tax, sales tax, insurance premium tax, mortgage and deed record tax and utility taxes.
Personal Income Tax
At full phase-in, the personal income tax will raise about $375 million per year. It will take three years for the phase-in to be complete. Under the proposal, the filing threshold for a family of four would move from $4,000 income to $20,000 income. It would eliminate Alabama's federal income tax deduction, where state income taxes are reduced by the amount a filer pays to the federal government. It allows deductions for mortgage interest, charitable contributions and medical expenses, but would place a five-percent tax rate of all income below $75,000 for individuals and $150,000 for married couples. A six-percent rate would apply to income above those marks.
According to the governor's office, 67 percent of Alabama filers would pay the same or less in income taxes.
For state ad valorem taxes, all property will be assessed at 100 percent of market value or current use value for the state portion of the tax. The term ad valorem means &uot;as to value.&uot; It reduces the tax rate on the state portion of the tax from 6.5 mills to 3.5 mills and increases the homestead exemption from $40,000 to $50,000 or appraised value. The proposal would also exempt those over age 65 from all state taxes on their homestead.
The proposal increases current use values by 22 percent over the next four years and limits the current use value to $650 per acre for farmland and $715 per acre for timber land, but places a cap of 2,000 acres that can be classified as current use property. Land in excess of 2,000 acres will be appraised at fair market value. Also, the proposal provides for a farmstead of 200 acres or $150,000 of improvements.
For local ad valorem taxes, the business class assessment ratio increase from 20 percent to 22 percent. It caps utility property payments at current payments until the 22-percent assessment would result in greater revenue.
Overall, property taxes increases by about 30 percent, according to governor's office figures. In tax year 2004, Pike County would see an additional $21,255 in its budget, according to the Alabama County Commission Association.
An average home in Alabama would, at a value of $85,000, see a $93 tax increase. Taxes on a house valued at $100,000 would increase by $136 and a $200,000 house would cost $425 more per year.
Homeowners can calculate their property tax increase on the governor's office website at http//www.gov.al.us.
Corporate Income Tax
Foremost is the elimination of the federal income tax deduction and sets the tax rate on corporate earnings at 6 percent, which is &uot;about average, compared to other Southeastern states,&uot; Riley said.
Corporate income tax collections would rise by about 25 percent, generating some $45 million.
Banks would see the elimination of credits for sales taxes paid and the federal income deduction would be taken away. Banks would also pay the six-percent rate and would pay a maximum business privilege tax of $15,000 like other corporations. The net increases banks pay would raise $12 million.
Significant changes in the sales tax structure will generate about $165 million in new revenue for state and local governments.
The proposal increases the sales tax on cars from two percent to 2.5 percent and increases the lease tax rate on cars from 1.5 percent to three percent.
Automotive repair and installation services would included in the sales tax structure and lubricating oil would be added to the sales tax base.
The proposal nearly triples the sales tax rate on cigarettes from $0.165 to $.31 per pack. The move is expected to generate $50 million annually.
The governor's proposal would eliminate the examination expense credit and reduces the business privilege tax credit from 60 percent to 30 percent of taxes paid, and limits the home office and real estate investment credits, all unique to Alabama among the southeastern states. Moves in the area would raise about $5 million.
Mortgage and Deed Recording Fees
Under the proposal, deed recording fees would increase from 1 mill to 2 mills,and mortgage fees would go from 1.5 mills to 3 mills. This move would generate an additional $45 million.
The proposal removes the utility license tax, which the governor's office said only affects some utilities in the state, and it raises the gross receipts tax - paid by all utilities - from four percent to 5.75 percent.
If the plan passes, the Alabama's total tax burden per capita would be 45th in the nation, and as a percent of income it would still fall below southeastern and national averages.
According to the Tax Foundation, one of the sources Carden uses as reference, Alabama's current ranking is 48th in the nation when measuring taxes as a percentage of income.
Not only will voters decide the fate of the tax proposal, but the proposal also includes what Riley calls accountability reform, and education in the state has a major stake in the new position.
Under the proposal, the Alabama Reading Initiative will be fully funded, the Alabama Math, Science and Technology Initiative will be expanded and a college scholarship plan will be funded. Also included is incentive pay for educators, performance-based contracts for principals and changes in tenure for school administrators. Health insurance for teachers and state employees will altered, increasing premium costs and co-pays for plan participants, and new laws will require local school boards to hire a skilled financial managers.
More spending decisions would also be made at the local level to address the needs of individual schools. Riley's proposal also ends &uot;pass through pork&uot; from the Legislature and allows line-item budgeting in the state budget.
New revenue generated under the plan would be &uot;unearmarked,&uot; meaning it would be split between the state's general fund and the Education Trust Fund based on budget projections and needs.