Tax Reform

Alabama’s State of the State Address

Nine months into her unexpected tenure, Governor Kay Ivey delivered her first State of the State address on January 9. Gov. Ivey said her goal at the start was to “steady the ship of state,” in the wake of circumstances surrounding former Gov. Robert Bentley’s 2017 resignation.  Gov. Ivey emphasized Alabama’s improving economic data such as rising revenues, increased economic development, and jobs numbers. In particular, the state’s unemployment rate continues its downward trend, hitting a record-low of 3.5 percent in November.

Moving on to her legislative agenda and budget proposals, Gov. Ivey asked for “pay raises for both education employees and state employees.” In recognition that “quality state employees are essential to good government,” she implored, “It is long past time for us to honor their service with better pay.” The governor’s budget proposal calls for 2 to 3 percent salary increases.

Gov. Ivey stated she is “focused on ensuring all Alabama children get a good start and have the resources they need to complete school.” She proposed $144 million more for K-12 and an additional $50 million for higher education – an increase requested by the Department of Education. She also expressed support for a $23 million increase for “First Class,” Alabama’s pre-kindergarten program. Unfortunately, the governor did not call for tying this funding to performance measures and outcome achievement. This is especially problematic when decades of education funding hikes have yielded few returns according to education policy expert and economist Courtney Collins. The ALEC Report Card on American Education puts it simply: “The status quo is not working. Whether by international comparisons, state and national proficiency measures, civic literacy rates, or career preparedness, American students are falling behind…and the worn-out response, “we need more money,” rings hollow after four decades of increased spending with nothing to show in return.” The governor also spent time expounding on her plans for education, which she calls “Strong Start, Strong Finish,” with goals to improve teaching from pre-kindergarten all the way up to career training and higher education.

Gov. Ivey called out Alabama’s troubled prison system as the state’s “biggest challenge.” She admonished that prisons have been crowded and understaffed for years and also cited a federal judge’s finding that the system’s mental health care is “horrendously inadequate.” Ivey referenced plans currently being crafted to address the failing system. Her budget proposal increases funding for the Department of Corrections to improve health care and hire more staff.

Moving on to economic development, the governor expressed a desire to enhance broadband internet access for rural residents. In other states with sizeable rural communities, proposed solutions have incentivized investments with government subsidies and other cronyism. A market-based approach, such as public-private partnerships, by Alabama legislators, could serve as a model for other states. The approach preferred by the governor remains to be seen.

On broader economic policy, the governor focused on tax carveouts for businesses that hire veterans, rather than true, broad-based reform. Carveouts such as this may be politically popular, but they result in higher overall tax rates by narrowing the tax base. The best way to create opportunities and access for Alabama’s veterans would be a broad reduction in the tax burden on businesses and individuals, allowing companies to create more and better jobs and hardworking taxpayers to keep more of their own money.

Broad-based tax relief for hardworking individuals and businesses is the best way to spur economic growth – as evidenced by the economic success in some of Alabama’s regional competitors. It should be no surprise why states like Florida and Tennessee experience record in-migration, economic growth, and jobs numbers – they’re creating business-friendly, competitive economic environments through substantial pro-growth tax cuts. Alabama’s economic outlook (according to Rich States, Poor States) is 21st nationally, while Tennessee and Florida rank 5th and 6th, respectively. Should Alabama maintain the status quo, it risks falling behind simply by standing still in a competitive region. Fiscal reform and tax reductions are vital to create a more business-friendly state.

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

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