By Quin Hillyer, a Mobile-based Contributing Editor for National Review Online. His new novel, Mad Jones, Heretic, is available now at Amazon.com.

As lawmakers plan their next legislative session Jan. 9, they should start a review process to fix some bad imbalances in Alabama’s state and local tax systems.

First, what do I mean by “unbalanced”? Think of it this way: Just as every good financial advisor tells his client to establish a balanced and diverse portfolio so that risk will be shared across numerous holdings and sources of revenue, so too should governments establish balanced revenue streams so that a sudden economic shift doesn’t leave them in the lurch.

Generally speaking, then, states should set up their state and local revenue systems so that property taxes, which tend to be more stable, and sales taxes, which tend to be more volatile (but which can more quickly attract windfalls when the economy thrives), provide roughly equal revenues. (In all of these discussions, by the way, we are considering state and local governments together, because state law usually conditions the breakdown of revenue sources between state government and local ones.)

Indeed, while some states surely have made some adjustments in the past seven years, this rough parity does indeed exist nationwide. Based on 2010 data (which commonsensically combines sales taxes and gross receipts taxes together), the Tax Foundation reported that the national average for state-local governments was to rely on property taxes for 35 percent of revenue and sales/gross receipts taxes for 34 percent. (Individual income taxes made up 20 percent, and other sources 11 percent.)

Alabama, on the other hand, relied on property taxes for just 19.4 percent of its revenues, while over-relying on sales taxes, for 47.5 percent of the total. (Since then, the property tax portion has fallen even further in Alabama, to 17.2 percent, while sales and gross receipts taxes have ticked even higher, to 48.3%.)

Different studies all show the same basic information (the Tax Foundation, the Federation of Tax Administrators, the Tax Policy CenterWallet Hub, and others use somewhat different methodologies, and so their rankings different from each other very slightly): Among all 51 states (counting Washington DC), Alabama’s property tax burden is second or third lowest, while its sales tax burden is about the 11th highest as a percentage of income and the about the fourth highest in terms of raw rates.

Now, you might ask how, in practical terms, that situation hurts us.

The answer: in multiple ways….

[The full column is here.]

 

 

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