5 years ago

Economists: Alabama’s income tax is inhibiting economic growth, should be eliminated

YH Taxes

By Dr. Daniel J. Smith and Dr. Stephen C. Miller

According to the Public Affairs Research Council of Alabama (PARCA), Alabama has the lowest taxes per capita in the nation. However, this doesn’t justify tax hikes as many people believe. In fact, it actually highlights the pressing need for tax cuts to make Alabama more competitive.

Let us explain.

What PARCA finds, using Census data, is that Alabama has low tax revenues per person. Many factors can influence this including state GDP, demographics, population trends, and, especially, tax rates. States that adopt competitive tax structures – tax structures that are straight forward, fair, and reasonably low – often foster a flourishing economy that brings in additional tax revenue through population and business growth.

Rather than suggesting that tax rates are too low, our low per person tax revenues actually suggests that Alabama’s tax rates are too high!

Alabama’s per person tax revenues may be the lowest in the nation, but Alabama’s tax rates are certainly not the lowest in the nation. Alabama’s 5% tax rate makes it the 31st highest in the nation (tied with Mississippi, New Hampshire, and Utah). That is higher than Florida, Tennessee, and Texas which all have zero income taxes (though Tennessee does have a 6% tax on interest and dividend income).

When it comes to corporate taxes, Alabama’s 6.5% corporate tax rate makes it the 26th highest in the nation (tied with Arkansas, Tennessee, and West Virginia). Importantly, nearby states such as Florida, Georgia, Mississippi, South Carolina, and Texas all have more competitive corporate tax rates.

Looking at sales taxes, Alabama’s state and local sale taxes make it the 4th highest in the nation. You see a similar story with liquor (Alabama is the 4th highest), wine (Alabama is the 5th highest, tied with New Mexico), and beer taxes (Alabama is the third highest). In fact, there are only a few things taxed in Alabama that have what can be considered, comparatively, a low tax rate, such as property, gasoline, and cigarettes.

What does this mean? It means that Alabama can’t tax its way to prosperity. This approach has clearly failed in Alabama. It also, as the PARCA report shows, hasn’t brought in the revenue state leaders hoped for. That is because other states, including many nearby states, are better situated to draw in state revenue because they are attracting residents and businesses to their states with their more competitive tax structures.

Overall Alabama doesn’t have a revenue problem, it has a competitiveness problem. We can build the best golf courses in the world, but even hard-core golfers will still choose to live in Florida. Because of that, Florida doesn’t just have lower taxes and more revenue per capita than Alabama, Florida has more capita! And, it is people that are the ultimate source of economic growth and development.

Researchers from Florida State University and Ohio University have shown that states with higher taxes than their neighbors have slower income growth. The long-run implication of this research is that lower tax rates can actually lead to higher revenues as incomes rise. Additionally, taxes can be cut without reducing revenue by broadening the tax base at the same time. In other words, tax privileges and exemptions should be reduced or eliminated in combination with tax cuts.

Eliminating the income tax would be ideal, to be competitive with Florida and Tennessee. Failing that, Alabama’s income tax should be reduced and flattened, with only one tax bracket to ensure that everyone pays their fair share. People who earn more pay more under a flat tax. That is because four percent of a million dollar income will always be much more than four percent of 50 thousand dollars.

Alabama needs tax reform. The current tax regime is both unfair and inefficient. More importantly, it’s not competitive with our neighbors and inhibits economic growth. While more prosperity will bring higher tax revenues, tax revenue is not itself the answer to Alabama’s sluggish growth. Alabama has chronic budgeting and spending problems. But the solution isn’t higher taxes. Economic growth doesn’t come from higher taxes.


Stephen C. Miller is the Executive Director of the Johnson Center for Political Economy and the Adams-Bibby Chair of Free Enterprise at Troy University. Follow him on Twitter @stevemillerecon. Daniel J. Smith is the Associate Director of the Johnson Center for Political Economy at Troy University. Follow him on Twitter @smithdanj1

12 hours ago

Boeing expects to be mission-ready in May for second uncrewed Starliner test flight

NASA and Boeing are now targeting August or September for the launch of Starliner’s uncrewed Orbital Flight Test-2 (OFT-2) mission to the International Space Station (ISS) as part of the agency’s Commercial Crew Program. A press release noted they will also evaluate options if an earlier launch opportunity becomes available, starting in the next few weeks.

OFT-2 is a critical developmental milestone on Boeing’s path to fly crew missions for NASA.

This will be the company’s second try at delivering its Starliner vehicle to the ISS in preparation for shuttling commercial crew to and from the space station.

The first Starliner mission ended prematurely as a result of a timing malfunction which led to the spacecraft missing the opportunity to set the proper course for connecting with the ISS.

However, the mission was still historic and marked significant progress in the Commercial Crew Program.

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Returning early to White Sands, New Mexico, the Starliner spacecraft during OFT-1 became the first-ever American orbital space capsule to land on U.S. soil. This came after the mission was launched perfectly by a Decatur-built, specially configured United Launch Alliance Atlas V rocket.

Boeing’s design center in Huntsville provided all of the structural design for the Starliner capsule. Additionally, Boeing’s Phantom Works division, which has an operation in the Rocket City, provided the power systems for the capsule.

Overall, Boeing’s CST-100 Starliner is designed, built, tested and flown by a team committed to safely, reliably and sustainably transporting astronauts to and from the ISS.

A release over the weekend detailed that the target launch timeframe for OFT-2 is supported by a space station docking opportunity and the availability of ULA’s Atlas V rocket and the Eastern Range.

However, Boeing said it will be mission-ready in May should a launch opportunity arise before the target. The Starliner team has reportedly completed all work on the OFT-2 vehicle except for activity to be conducted closer to launch, such as loading cargo and fueling the spacecraft. The team also has submitted all verification and validation paperwork to NASA and is completing all Independent Review Team recommended actions including those that were not mandatory ahead of OFT-2.

Software and Mission Operations teammates in Houston have been hard at work conducting flight software simulations, including end-to-end confidence and integration testing that will serve as a mission dress rehearsal before every future Starliner flight. The company expects to conclude all software testing this month and will support NASA’s post-test reviews as needed.

Additionally, the Starliner team is now preparing for the Crew Flight Test (CFT) to enable the shortest turnaround time possible between flights while maintaining its focus on crew safety. NASA’s CFT astronauts recently suited up and climbed aboard Starliner to perform a fully integrated and powered checkout of the OFT-2 vehicle supported by life support and communications systems. The OFT-2 spacecraft and all systems are nearly identical to those that will fly during Starliner’s first crewed mission, which will be the second flight of that spacecraft.

Safely and sustainably transporting crew and cargo to and from low Earth orbit destinations for NASA and other future customers is the ultimate goal. Boeing is confident in the Starliner vehicle, the team and the missions ahead as the program nears the completion of its development phase.

Sean Ross is the editor of Yellowhammer News. You can follow him on Twitter @sean_yhn

13 hours ago

Workforce development is giving Alabama a competitive edge

Recruiting, training and empowering a highly skilled workforce driven by business and industry needs is giving Alabama a competitive edge for economic growth.

We see the results of this sound strategy throughout the state. As Governor Kay Ivey recently announced, Alabama’s economic development activity in 2020 generated approximately $5 billion in new investments and nearly 10,000 job commitments. This level of job recruitment is astounding, especially considering the challenges the coronavirus posed to economic developers in 2020. These new jobs will help to lower or keep low our unemployment rate, which is already the lowest in the Southeast.

In economic development, some analysts focus on incentive packages that states offer to attract new businesses. But good business leaders know the most important resource a state can offer is a pool of talented, well-trained and ready workers.

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There is no doubt that Alabamians are hard workers. This is no secret among America’s leading industries, who have seen for themselves that Alabama brings to the table dedicated workers and a workforce development strategy that are second to none.

Under Governor Ivey’s leadership, workforce development in Alabama is a collaborative effort. Shortly after assuming office, Governor Ivey launched Strong Start, Strong Finish to integrate Alabama’s early childhood education, K-12, and workforce development programs. Through the Success Plus initiative, a component of Strong Start, Strong Finish, Governor Ivey established a structured path for our state to add an additional 500,000 credentialed workers to the workforce by 2025. In addition, it equips our citizens to work the jobs that are in greatest demand. As Alabama Secretary of Commerce Greg Canfield said, Success Plus gives prospective employers “yet another reason” to locate in Alabama.

These efforts to improve and coordinate our education and workforce training programs have received national acclaim from organizations like the National Governors Association, Credential Engine, the Lumina Foundation, Site Selection magazine and more.

But to keep moving forward, we cannot rest on our laurels. While all Alabamians can be pleased our economy is growing and unemployment is low, our labor force participation rate must improve. Defined by the U.S. Bureau of Labor Statistics, the labor force participation rate is the percentage of the population age between 16 and 64 who are either working or actively looking for work. Alabama’s most recent labor force participation rate is 57.8 percent, compared to the national rate of about 62 percent.

We know a significant number of Alabamians do not work or actively look for work because they fear they will lose benefits or services quicker than they can make up for them through paid employment. A recent survey of unemployed and underemployed Alabamians revealed that more than 37 percent declined or delayed taking a new job or promotion because they were afraid they would lose a government benefit and end up being worse off financially.

Known as benefit cliffs, these situations have long been recognized to create financial disincentives for some individuals to earn more income or train for higher paying occupations. Because many do not know whether a benefit cliff actually exists for their particular situation, low-income workers may decline to take on more hours at work or accept promotions simply out of fear they will lose benefits. This lack of transparency can drive poor decision making and hold these workers back.

To provide this needed transparency, Alabama offers DAVID, the Dashboard for Alabamians to Visualize Income Determinations. Created through a unique partnership between the state and the Federal Reserve Bank of Atlanta, DAVID helps individuals understand how much money they will gain through paid employment in various careers. Alabama is the first state in the nation to create such an innovative tool – a benefits cliff calculator combined with a career planner.

Raphael Bostic, the president and CEO of the Atlanta Fed, said this will help ensure the economy “works for everyone.”

Connecting education and workforce development has proven to be not only a sound strategy for helping unemployed and underemployed Alabamians, it also strengthens our ability to recruit new jobs and economic opportunities. By continuing to provide innovative tools, educational opportunities and world-class workforce training, we can ensure our economy does indeed work for everyone and that Alabama’s best days are yet to come.

Tim McCartney, formerly of McCartney Construction in Gadsden, is the Chairman of the Alabama Workforce Council. To learn more about the Council, visit www.alabamaworks.com.

13 hours ago

Alabama ranked No. 8 in nation for economic momentum — ‘On the right path for the future’

Governor Kay Ivey on Monday announced that Alabama ranks among the top states for economic momentum in a new analysis that evaluates key measurements of economic performance in 2021.

The Washington, D.C.-based publication State Policy Reports ranked Alabama No. 8 in its Index of State Economic Momentum for the first quarter. The state’s score was 1.31, compared to a national average of zero.

The index ranks states based on their most recent performance in three important measures of economic vitality: personal income growth, employment growth and population growth.

In a release, Ivey said the Yellowhammer State’s ranking in the report shows that the state is fully on the road to recovery after nationwide economic disruptions caused by the COVID-19 pandemic.

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“We’ve worked very hard over the past few years to strengthen the foundations of Alabama’s economy by encouraging business growth and equipping our workers with the skills they need to succeed in the 21st century workplace,” Ivey stated. “I believe this ranking shows that Alabama is on the right path for the future.”

Alabama’s ranking was notably higher than its surrounding states of Georgia, Florida, Tennessee and Mississippi, as well as the comparable South Carolina.

When it came to personal income growth, Alabama ranked No. 13 nationally, with a 4.8% gain during 2020, higher than the national average of 4%. For employment growth, the state scored No. 7 year-over-year. However, when looking at population growth, Alabama ranked in the middle of the pack for the one-year period ending July 1, 2020, with a gain of 0.3%, just below the national average.

Greg Canfield, secretary of the Alabama Department of Commerce, advised the state is poised for additional economic vitality, with nearly $5 billion in new capital investment tied to business growth projects announced last year.

“The robust level of economic development activity recorded in spite of the challenges of the COVID-19 pandemic gives me optimism for the future,” Canfield said in a statement. “I’m confident that Alabama’s economy is being re-energized for growth.”

Leaders in the Alabama Legislature said the report findings underscore the state’s strong economic prospects as the pandemic loosens its grip on the country.

Senate Pro Tem Greg Reed (R–Jasper) and Rep. Bill Poole (R–Tuscaloosa) earlier this year helped reauthorize two state economic development laws, the Alabama Jobs Act and the Growing Alabama Act; they are also spearheading efforts when it comes to enacting policy recommendations proposed by the Alabama Innovation Commission.

“These strong economic numbers, recorded in the midst of a pandemic, emphasize the resilience of Alabama’s economy. Our state has provided the tools needed to make Alabama a competitive place to invest and do business,” Reed remarked. “Bringing good-paying, high-quality jobs and economic opportunity to our state is the number one way we can increase quality of life for Alabamians. For that reason, economic development will continue to be a top priority of our state’s leadership in the future.”

Poole commented, “Alabama’s performance related to these key economic indexes demonstrates the resiliency of the citizens of our state in the face of the pandemic and validates the hard work that has been undertaken during recent years to grow and diversify Alabama’s economy.”

“These efforts have been collaborative across all branches of government, have been bipartisan, have involved public-private cooperation and have focused on strengthening Alabama’s ability to compete in a 21st century economy,” he continued. “These rankings should reinforce Alabama’s commitment to education and workforce development, to supporting the growth of our current businesses, and to strategically recruiting new businesses. It is also critical that we work together to strengthen Alabama’s competitiveness in the areas of innovation, technology, research and entrepreneurship. Our state’s continued focus on these objectives will serve to benefit all Alabamians.”

Sean Ross is the editor of Yellowhammer News. You can follow him on Twitter @sean_yhn

14 hours ago

Justice Will Sellers: Remembering the Bay of Pigs and its aftermath

When great powers stump their toe on foreign policy, the initial pain, though slight, often causes loss of focus, a stumble and sometimes a more serious accident.

Sixty years ago, the United States sponsored an unsuccessful invasion of Cuba, and the colossal failure ultimately damaged our nation’s reputation, emboldened our enemies, worried our allies, and clouded our vision of proper objectives for foreign relations.

President John Kennedy’s inauguration was a cause for much optimism as a young, vibrant breath of fresh air would lead America in a new direction. His inaugural address was an inspiring call to a new nationalism of service to the world at large, and he promised that the United States would do all in its power to protect freedom around the globe.

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The naivety of his rhetoric was not apparent, however, until he was challenged by an energized Russian bear ready to test the mettle of the young president.

At the beginning of the new administration, America had every reason to be hopeful that the world was moving towards greater freedom. The Eisenhower administration had successfully used covert action to change the governments of Iran and Guatemala, some hotspots of communist insurgency had been stopped, and there was stability in the Philippines and Vietnam.

When the torch was passed to the Kennedy administration, the world appeared stable and controllable.

During his transition from electoral success to governing, Kennedy reached out to some of the smartest and most capable individuals in business and academia. These whiz kids promoted a theory that the machinery of government was a science, and if the formulas were correct, the results would be both predictable and successful.

But, while genius in government is great, practical simplicity is always better. Understanding and assessing people and personalities often primes academic articulation. Within a matter of months, President Kennedy was to learn this the hard way.

By failing to understand the difference between ideology and interests in diplomacy, the Kennedy administration embarked on a path that reflected an impractical view of the world as they wanted it to be and failed to appreciate that an effective foreign policy must reflect a national self-interest to deal with the world as it is.

Even before the Bay of Pigs, members of Kennedy’s foreign policy team decided on a covert coup to oust Portugal’s dictator.

This plan made little sense.

There was no overarching U.S. interest at stake, any local opposition to the regime was minimal, and, to make matters worse, Portugal was a NATO ally. Thankfully, the coup never got off the ground, the covert action was scrapped, and the instigators departed before any real damage was done.

But the thought process, or lack thereof, was troubling. And any further ideas about forced regime change should have been put on hold until a comprehensive foreign policy was developed and measured objectives approved.

But rather than seriously considering American interests, the excitement of covert action and the thrill of cloak and dagger operations distracted the young administration and set in motion one of the biggest disasters that was as open to ridicule as it was notorious for ineptness.

When U.S.-sponsored Cuban exiles landed at the Bay of Pigs, nothing went according to plan. There was no expected popular uprising, and, more importantly, Kennedy had canceled any air support. With limited engagement from the Navy, the landing party hardly got off the beach.

The conflict was a total rout with almost the entire invasion force killed, wounded, or captured. In retrospect, any casual observer would question the need to invade Cuba, our national interest there, and any thoughtful steps to take to achieve our goals short of force. The after-action report was devastating and served as a proof text for Murphy’s law.

The Bay of Pigs served as a shakedown cruise for the new administration, and the evaluations of its first four months was resoundingly negative. Allowing a small country like Cuba to thwart an American-sponsored coup fueled our enemies to take full advantage of the geniuses who attempted to advance the national policy of a new administration.

After the Bay of Pigs, the stature of the United States was substantially reduced in the eyes of the world; perhaps for the first time, we were vulnerable, and our enemies probed and tested our resolve.

Indeed, for the rest of his presidency, Kennedy’s foreign policy exploits would be an attempt to overcome this defeat in Cuba. Sensing distraction, our enemies took full advantage of us.

In Europe, the Soviets approved building a barrier between East and West Berlin, and when Kennedy signaled that he would take no actions to stop construction, the barrier became the solid, fortress-like wall, which was improved and secured to provocatively divide the people of Berlin.

In Southeast Asia, Russia amped up its support of the Pathet Lao in a proxy war for control of Laos. Khrushchev rhetorically decimated Kennedy at the Vienna Summit some months later.

Atoning for the loss of prestige at the Bay of Pigs, Bobby Kennedy became obsessed with Cuba, diverting resources in any number of attempts to topple the Castro regime. In fact, some of the most preposterous assassination plans cooked up by the CIA were aimed at Castro.

Rather than destabilizing Cuba, Kennedy’s singular focus forced Castro into a strong alliance with Russia, resulting in a Soviet base 90 miles from Florida. The obsession with Cuba led to the Cuban Missile crisis which was the closest the world has yet come to a nuclear war.

But perhaps the most significant legacy from Kennedy’s bruised ego was his desire to reveal his machismo and show he could draw a line in the sand against communism.

The place he chose to show resolve was Vietnam.

The Bay of Pigs represented not only a defeat of U.S. interests, but a disaster in creating a foreign policy that was rooted in a personal quest to show a powerful America and decisive administration. By focusing on goals and objectives that had little relation to the permanent interests of the United States, Kennedy ultimately followed a path leading to humiliation and defeat.

Engaging on the world stage requires critical thinking about America’s goals and the strategies to achieve them. Foreign policy must be practical and focused on long-term interests and not the distractions of ideological whims.

Will Sellers is an Associate Justice on the Supreme Court of Alabama

14 hours ago

Watch: Nick Saban gives master class on leadership, team building

The Birmingham Business Alliance recently presented a virtual business forum featuring University of Alabama head coach Nick Saban, who shared his candid insight and tips on a range of topics.

The event was sponsored by Red Diamond Coffee & Tea and was moderated by bestselling author Jon Gordon.

The legendary football coach discussed leadership, team building, creating a winning strategy and other lessons that can be taken from athletics and applied to the business world.

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“To be successful in whatever you choose to do is probably pretty similar,” Saban advised. “I think culture is the most important thing. I think mindset is a very important part of culture. Obviously, whatever your business is you have to define the culture. To get people to have a vision for what they want to accomplish and what they want to do — to get them to understand the things you have to do to accomplish that, ‘here’s what you have to do to edit your behavior to be able to do it,’ and then having the discipline to execute every day is important in being successful in anything you do. And I think the hardest thing for most folks is the discipline piece.”

He defined discipline as “do what you’re supposed to do when you’re supposed to do it the way it’s supposed to get done — do the right thing the right way the right time, all the time.”

“But self-discipline is really more about, you know we make hundreds of decisions every day that really boil down to two questions,” Saban continued. “Here’s something I know I’m supposed to do that I really don’t want to do, and you make yourself do it; and then here’s something I know I’m not supposed to do but I want to do it — can you keep yourself from it? To me, if you can make those choices and decisions the right way, you’re always going to be able to stay on the path of doing the things you need to do to accomplish the goals that you have. … I think the mindset, the culture, what it takes to be successful in business or in football or in any sport is probably very similar.”

Watch the full 38-minute video of the forum here or below:

Sean Ross is the editor of Yellowhammer News. You can follow him on Twitter @sean_yhn