PARCA report highlights inequities in Alabama’s tax system

Thomas Spencer of PARCA highlights Alabama’s inequitable tax system with a reliance on regressive sales taxes

The Alabama Constitution of 2022 represents a significant step forward in addressing some of the state’s historical inequities, mainly by removing racist and unconstitutional provisions from the 1901 Constitution. Thomas Spencer, senior research associate for the Public Affairs Research Council of Alabama, says that the new version of the Constitution still leaves the state’s tax system essentially unchanged, perpetuating many of its predecessor’s problems, particularly in how taxes are allocated, a PARCA report finds.

One of the most significant issues highlighted is the inequity of Alabama’s tax system. Alabama remains one of the lowest tax-collecting states in the U.S. The state and local governments consistently collect less per capita in taxes than almost all other states. In 2023, Alabama ranked 49th in per capita tax collections, just ahead of Tennessee, a neighboring state with similarly low tax rates.

This low tax collection has impacted public services. Due to the state’s limited tax base, Alabama has far less revenue to spend on crucial public services like education, healthcare, public safety and the justice system.

“If you compare our state and local spending to other states, we’re in the 40s. We spend less than most other states and we’d probably be farther down if the federal government didn’t send us a lot of supplemental money because we are disproportionately poor,” said Spencer.

In many states, legislators and local governments have the power to adjust taxes as needed to respond to changing conditions. In Alabama, however, the state’s constitution imposes strict procedural requirements for increasing property taxes. For a property tax increase to occur, the local government must first approve it, then it must be approved by the local legislative delegation, and finally, the increase must be ratified through a public referendum.

As a result, Alabama’s local governments are forced to rely more heavily on sales taxes, which are inherently regressive. The state has some of the highest combined state and local sales tax rates in the country, with a weighted average of 9.29 percent. While the state made a small step toward equity by reducing the sales tax on food in 2023, with another decrease working through the legislature now, the change is limited and has not addressed the broader issues of regressive taxation.

Moreover, Alabama’s system of earmarks, which directs revenue to specific uses, further limits the flexibility of the state to address its most pressing needs. The state earmarks more of its revenue than any other state. For example, gas taxes are restricted to funding road construction, which prevents the state from using those funds to support other transportation needs, such as public transit. 

“We don’t enjoy that because of a constitutional provision written by, you know, the road builders and ratified by the people years and years ago with probably not a lot of thought as to what the world would look like later on,” said Spencer.

In terms of education, Alabama spends more on higher education than most states. Over half of the revenue for higher education comes from student tuition, not tax revenue. This reliance on tuition makes college less affordable, particularly for low-income families. Alabama’s in-state tuition is the second highest in the Southeastern U.S., and the state provides less financial aid than its neighbors, making higher education a greater financial burden for families with low incomes.

“We’ve had pretty phenomenal growth in those categories, in supporting education, higher education, but when the economy goes south, which there are apparently some red lights going on right now, that is the first to fall,” said Spencer.

The state’s tax system is also hindered by an imbalance in revenue sources. A fair and efficient tax system is generally based on a balanced approach that relies on a mix of property, sales and income taxes. However, Alabama’s system is overly reliant on sales taxes, which are less stable and more regressive than property taxes or income taxes. Because property taxes are difficult to raise, and income taxes are less developed in the state, the tax burden falls most heavily on lower-income residents.

“I think the point in our free market society is we want people to be able to sustain themselves, and if they’re out earning a living, they should be able to keep that money and support themselves and support their families and build a better life,” said Spencer.

Third Report from Joint Effort with PARCA – The Alabama Constitution’s Impact on Taxes and Spending

Previously, ACCR announced a joint effort with the Public Affairs Council of Alabama (PARCA) to create a series of reports on how Alabama’s Constitution impacts the lives of its citizens. We are excited to announce the publication of the third of these reports, The Alabama Constitution’s Impact on Taxes and Spending.  This report can be found at: https://parcalabama.org/the-alabama-constitutions-impact-on-taxes-and-spending/

Brian Lyman: The case for a new Alabama constitution

January 27, 2025

There’s a strange limbo in the weeks before the Alabama Legislature returns to work.

You know what legislators should focus on. Living in Alabama makes that obvious. You can guess where their focus will be based on what they say in the weeks leading up to the gavel drop.

But honestly? No one knows anything until the first day of the session. In fact, the drift of the session may not be clear for weeks afterward.

So we wait.

And not just fools like me who willingly enter that mold-filled building on South Union Street. Local governments sometimes have to wait up to nine months for legislators to make major decisions about their operations. School district officials cross their fingers as the state education budget goes through the legislative process, hoping nothing gets cut.

Every decision must go through Montgomery. And many of those go through unelected lobbyists and special interest groups first, who get an unofficial veto over the public business.

It’s a real irony. A state government that howls at the slightest federal intervention keeps a tight lock on Alabama’s local governments and school districts.

County and city governments only have the power Goat Hill allows them to have. Property tax caps make state funding critical to most public schools, especially those in rural districts. That gives legislators lots of control over areas that either lack the power to levy local taxes or lack the business development that would make that practical.

That’s all thanks to the 1901 state constitution, an authoritarian document that violated the U.S. Constitution; stole the vote from Black Alabamians and snatched it from poor white Alabamians a few years after it went into effect.

The overt racism is no longer there, perhaps. But the 1901 constitution’s vision of a small clique of elites running the state free from public approval is largely how Alabama government still works.

So even though a statewide lottery would be popular (not with me, but I’m only one of 5.1 million), you don’t get to vote on it.

Most Alabamians seem OK with Medicaid expansion. But not our leaders, who knit their brows and sigh at the cost as they shovel billions of dollars into an ever-more expensive prison.

If polls are correct, a majority of people living here don’t like Alabama’s effective abortion ban. But the Legislature, which only listens to hardcore Republican voters, will keep it in place.

You know what would address these problems?

A new state constitution.

Yes, yes, I know. The powerful interests that dominate Alabama government aren’t going to surrender their privileges without a fight. Electing people to a constitutional convention could be messy. There’s no guarantee that what would emerge from a convention would be better than what we have. And even a decent new governing document would face a blitz of attacks before voters got a chance to weigh in on it.

The challenges are many.

But think about what we could gain.

The pieties about property tax caps in Montgomery belie the fact that they serve wealthy landowners, particularly those who make their money cutting down trees. Low property taxes are good for them. They’re terrible for rural communities with small tax bases and limited commercial development. Their schools struggle to operate with low or nonexistent local revenue.

So give those local governments and the people who elect them the power to run things. The ability to decide what education should look like in their neighborhoods.

Maybe those governments will raise taxes. Maybe voters will punish them for that.

Or maybe they’ll be happy to see their children’s teachers get the resources they need to educate their students. In both cases, it will be living, breathing Alabamians making those choices. Not dead planters from the Edwardian era.

But let’s think bigger.

A 1956 constitutional amendment passed amid white hysteria over Brown v. Board of Education said there is no right to a public education in our state. That language needs to go, if only to force our government to fund schools.

Our Legislature has spent the last few years doing everything to make voting hard. Outlawing drop boxes. Banning private money to support election operations (without allocating funding to make up for that). Criminalizing forms of absentee ballot assistance.

A new constitution should include an affirmative right to vote, similar to what scholar Rick Hasen has suggested, one that prevents legislators from making the exercise of your constitutional rights an intimidating ordeal.

There’s more. Make it harder for the Legislature to override a gubernatorial veto. Abolish the anti-democratic budget isolation amendment, which effectively requires bills to get 60% of the vote (not a simple majority) to pass. Turn the state judiciary from elections to appointments.

Will this make Alabama a utopia? Of course not. Systemic racism and poverty can only be addressed by political will, whatever framework of government you have.

But empowering people to address those problems will help us develop solutions.

And best of all, it won’t make us wait on the whims of a part-time Legislature that all too often takes its cues from a small group of elites.

Second Report from Joint Effort with PARCA – The Government Closest to the People?

Previously, ACCR announced a joint effort with the Public Affairs Council of Alabama (PARCA) to create a series of reports on how Alabama’s Constitution impacts the lives of its citizens. We are excited to announce the publication of the second of these reports, The Government Closest to the People? The Statehouse,  The Courthouse, and City Hall.  This report can be found at: https://parcalabama.org/wp-content/uploads/2024/12/The-Government-Closest-to-the-People.pdfthe-government-closest-to-the-people/