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“Fair tax” legislation would replace income, sales tax with consumption tax

Evan Mealins

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Alabama Rep. Mike Holmes, R-Wetumpka, prefiled “fair tax” legislation for the 2020 regular session that replaces state income and sales taxes with a statewide consumption tax. 

The legislation, called the Alabama Economic Freedom Act, would create a uniform 8.03 percent tax on all purchases of goods and services in the state. The tax is designed to generate the same amount of revenue for the state as the traditional income and sales tax system.

An automatic rebate given at the beginning of the month, called a “prebate,” would offset the price of the tax for Alabama citizens living at or below the poverty line to prevent causing unreasonable economic harm to low-income residents.

The Income Tax Division of the Alabama Department of Revenue would be rendered obsolete and the collection of the consumption tax would be redirected to the Sales Tax Division.

Holmes said the current system picks winners and losers through a “never-ending maze of tax exemptions, deductions, and credits” in a release. The system proposed in the legislation is simple and one people can understand, he claimed.

How a fair tax works

Proposals to improve the current tax system are varying and numerous.

Legislation prefiled by Holmes typifies the fair tax plan; its writing was based on the Fair Tax Act, a bill that has been introduced in Washington in every session since 1999.

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The federal version of the plan would completely eliminate the income tax, but Holmes’s state-level plan would eliminate both corporate and individual state income taxes as well as repeal state, county and municipal sales taxes. The plan would replace those taxes with a statewide tax based on consumption — a consumption tax — at 8.03 percent, levied at the point of sale of all goods and services purchased in the state. Intermediate sales between businesses would not be taxed, nor are used goods or any savings, investment or education tuition expenses. 

The plan is also supposed to be revenue-neutral, meaning that — if everything was to go as planned — the consumption tax would generate the same amount of revenue for the state as the traditional income and sales tax system.

Eliminating income tax and sales tax, which together bring in 86 percent of the state’s revenue, would leave a gaping hole in the budget for the consumption tax to fill. In fact, research from The Beacon Hill Institute predicted that to be revenue-neutral in 2019, the consumption tax would have to bring in $12.28 billion. How would the tax system under this proposed legislation bring in all that money? 

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By taxing more things you buy. At first, the consumption tax may seem like a normal sales tax. But the plan would fail to be revenue neutral if all it did was institute a statewide 8 percent sales tax. So, the consumption tax would be levied on nearly all purchases, including previous purchases free from sales tax: gasoline, new houses, services like plumbing or freelance writing, etc. In 2017, purchases in Alabama subject to the consumption tax totaled 84.2 percent of total gross domestic product, according to The Beacon Hill Institute’s study. Using a little bit of algebra, they discovered that the tax rate would have to be 8.03 percent to raise $12.28 billion.

As the state collects the consumption tax, some of those funds would have to be redistributed to the counties and cities whose sales taxes would be repealed under the act. Of the share of funds earmarked for counties and cities, 60 percent would go to cities and 40 percent would go to counties, portioned out based on population.

A provision in the legislation ensures that low-income Alabama citizens would not be a victim of the tax.

An automatic rebate, called a “prebate,” would be available to all legal U.S. and Alabama residents to offset the cost of the consumption tax. For all legal households, a check would come in the mail at the beginning of the month for 8.03 percent of what the Department of Health and Human Services deems poverty level monthly wages for the family size of the household. This amount is what the household could be expected to pay in consumption tax, were it consuming goods and services at the federal poverty line. Under this proposed system, low-income Alabamians would be freed from taxes on purchases, unlike the current tax system.

So if, on average, each Alabamian would still pay the same amount of taxes, what would be the positive effects of the Alabama Economic Freedom Act becoming law? Alabama Director of Americans for Free Taxation Chuck Bailey, who assisted in the legislation’s drafting, spoke with the Alabama Political Reporter on Monday to offer some insight. 

Regarding the impact of eliminating taxes on intermediate sales and corporate income, Bailey said, “Why not just keep all those taxes from being accumulated from business to business as the product is being made or the service is being performed, and just place it where it’s really supposed to be: when the individual purchases it for his own individual use?” Fair tax proponents hope that removing those taxes on businesses would lower the price of goods and services to the consumer.

Bailey is part of a group of activists vying for fair tax to gather more national momentum. To do that, he said, is the reason the plan was brought to the state level; if the plan is successfully put in place in, say, Alabama or Georgia, politicians will feel more comfortable considering the Fair Tax Act, he hopes.

Bailey also pointed out the amount that tourists will be able to contribute to the tax base in Alabama. 

One possible loophole is the ability for Alabama residents who live near the state border to go to the nearest state to buy their groceries or gas or anything, and essentially be exempt from paying the state consumption tax. No proponent of the act was given a chance to comment on this to the Alabama Political Reporter, however. 

The act would also render the Income Tax Division of the Alabama Department of Revenue obsolete. The sales tax division would now be redirected to collect the consumption tax.

The Legislature will reconvene in February. 

Correction July 23: A previous version of this article incorrectly stated that the prebate was available only to households at or below the poverty line. The prebate is based on family size, not income. We regret this error.

 

Evan Mealins is a reporting intern at the Alabama Political Reporter and student at Auburn University working toward a B.A. in media studies. You can follow him on Twitter @EvanMealins or email him at [email protected]

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Alabama lawmaker pre-files legislation to allow removal of Confederate monuments

If passed, the measure would permit counties and cities to relocate historic monuments currently located on public property.

Brandon Moseley

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A Confederate monument in Birmingham's Linn Park was removed. As have monuments and memorials in Mobile and on the campus of the University of Alabama.

Alabama State Rep. Juandalynn Givan, D-Birmingham, introduced legislation this week in advance of the 2021 legislative session that, if passed, would permit counties and cities to relocate historic monuments currently located on public property. Givan’s bill, HB8, would also provide for the relocation of historic memorials to sites appropriate for public display.

“Across the state of Alabama, citizens are calling for the removal of prominently placed statues and monuments that are insensitive or offensive to the communities that surround them,” Givan said. “City and county governments must be able to address the demands of their citizens. This legislation provides a tool for local governments to safely remove these artifacts so that they can be moved to a site more appropriate for preserving or displaying the historical monument.”

Removing the monuments and historical markers is currently illegal under Alabama’s Memorial Preservation Act, which the state Legislature passed in 2017. Givan has been an outspoken opponent of that Republican-sponsored legislation. In 2018, Givan introduced a measure to repeal the bill that barred the removal of monuments.

“I believe HB8 can achieve bipartisan support,” Givan said. “My bill seeks to balance the wishes of the people. It respects the will of communities that want the monuments removed. It also respects those who wish to preserve history. With this legislation, Confederate monuments could be relocated to a public site, like Confederate Memorial Park, whose purpose and mission is to interpret and tell these stories. When the Legislature convenes, I hope to have the support of both the House of Representatives and the Senate.”

If enacted, HB8 would permit county and municipal governments to remove memorial monuments, including permanent statues, portraits and markers, located on public property in their jurisdictions. It would require a transfer of ownership of the removed monuments to the Alabama Department of Archives and History or the Alabama Historical Commission. Finally, the bill would instruct Archives and History or the Historical Commission to maintain and display monuments removed by local authorities in a location accessible for public display.

The Southern Poverty Law Center, which keeps track of Confederate monuments and memorials across the country, released an update to its Whose Heritage report, which tracks symbols of the Confederacy on public land across the United States. They report at least 30 Confederate symbols have been removed or relocated since George Floyd’s death on May 25, 2020.

These include 24 monuments removed, 5 monuments relocated and the Mississippi state flag replaced. Since the Charleston church shooting in 2015, 115 total symbols have been removed from public spaces. These include 87 monuments that have been removed or relocated from public spaces. At least 78 monuments were removed and nine were relocated.

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SPLC says there are still nearly 1,800 Confederate symbols on public land, and 739 of those symbols are monuments. The SPLC has prepared an “action guide” to help community activists target Confederate historical markers and memorials for removal.

President Donald Trump has denounced what he calls “cancel culture” that seeks to remove historical monuments and statutes.

“There is a growing danger that threatens every blessing our ancestors fought so hard for, struggled, they bled to secure,” Trump said. “Our nation is witnessing a merciless campaign to wipe out our history, defame our heroes, erase our values, and indoctrinate our children.”

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Senate pro tem requests general fund committee begin hearings in July

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Senate President Pro Tempore Del Marsh, R-Anniston, announced today that he has asked Senate Finance and Taxation General Fund Committee Chairman Greg Albritton, R-Range, to begin holding General Fund Committee meetings in preparation for the next session.

In an effort to be better prepared because of uncertainty in state revenue as a result of COVID-19 pandemic Senator Albritton has agreed with Senator Marsh and has invited Legislative Services, the Department of Finance, Pardons and Paroles, Corrections and the Personnel Department to provide updates to the committee.

“Typically, we begin this process closer to sessions however because of uncertainty about state income and possibility of special sessions, we felt like it was important to get started much earlier than usual in this process,” Senator Albritton said. “The Legislature has done an excellent job managing our budgets over the past few years. So much so that Alabama was able to weather the storm of the COVID-19 shutdown this year with little impact to our vital state services. We understand that we will not have final revenue projections until after July 15th, but we must continue to do our due diligence and ensure that we use taxpayer money sensibly.”

“We want to make sure that all public money is being used wisely, now and in the future,” Senator Marsh said. “We have many pressing issues facing the state such as a potential $2 billion-dollar prison reform proposal and a stunning lack of rural broadband investment which need to be addressed whenever the Legislature is back in session and it is our duty to make sure we are prepared and kept up to speed on these matters. Furthermore, the taxpayers deserve a clear and transparent view of how their money is being used.”

The hearings are scheduled to begin July 9 in the Alabama State House.

 

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Part-time employee in lieutenant governor’s office tests positive for COVID-19

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A part-time employee in Lieutenant Governor Will Ainsworth’s office, who the office said works only a handful of hours each week, tested positive for COVID-19 on Sunday, according to a press statement.

The employee, whose work area is separated from the rest of the staff, last worked in the office on the morning of Thursday, June 18.

All members of the office staff have been tested or are in the process of being tested for COVID-19 in response, and, thus far, no additional positive results have been reported.

In addition, the State House suite has been thoroughly cleaned and will remain closed until all employees’ test results have been returned.

Employees are working remotely from home, and phones are being answered in order to continue providing services to the citizens who need them.

 

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Three workers at ADOC headquarters among latest to test positive for COVID-19

Eddie Burkhalter

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Sixteen more Alabama Department of Corrections employees, including three at the department’s headquarters in Montgomery, have tested positive for COVID-19. 

The department’s latest update, released Monday evening, puts the total of confirmed cases among employees at 99, with 73 cases still active. 

Five more inmates have tested positive for COVID-19 as well, including inmates at the Donaldson Correctional Facility, the Easterling Correctional Facility, the Kilby Correctional Facility, the Julia Tutwiler Prison for Women and the St. Clair Correctional Facility.

18 of 27 confirmed cases among inmates remained active as of Monday, according to ADOC. 

Of the department’s 28 facilities, there have been confirmed COVID-19 cases among staff or inmates in 21. Of the state’s approximately 22,000 inmates, 214 had been tested as of Friday. 

Areas inside numerous state prisons are under quarantine, with ADOC staff either limiting inmate movements to those areas or checking for symptoms regularly and conducting twice daily temperature checks, according to the department.

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