First there was the Governor’s plan which would increase taxes in targeted areas by $541 million, then there was Senator Del Marsh’s broad gaming solution and after that came Speaker Mike Hubbard’s plan raising taxes and giving exclusive gaming rights to the Poarch Creek Indians.
A fourth plan is about to be publicly released…and it’s certainly representative of thinking “outside the box.”
Representative Mike Holmes (R- Wetumpka) is offering the “Bold Tax Reform for Alabama” as a conservative alternative to previously released plans. Whether one supports it or not, it certainly is bold…
Holmes plan would require a constitutional amendment and would include repealing the state income tax. In return, the state sales tax would be expanded to include services, increased from 4% to 6.5% and most exemptions would be removed. The result is an increase of an estimated $475 million to the state.
Yes, it would be a tax increase. But before anyone goes nuts, the plan has much, much more to it.
First, the two main appropriations bills would be capped at FY15 baseline levels ($5.9 billion for the ETF and $1.85 billion for the GF) and would change annually based on changes with the Consumer’s Price Index.
Second, within the General Fund appropriation’s bill, Medicaid and Corrections would be capped relative to a percentage of total expenditures.
Third, immediate needs such as repayment to Alabama Trust Fund for the General Fund Rainy Day Account, funding the prison reform initiative and funding for $60 million bond for prison capital construction needs are all addressed.
Fourth, sales taxes would be removed from groceries. At an annual estimate of $330 million, this would reduce the burden on lower income taxpayers.
Finally, any excess funds left over cannot be used for recurring expenses. Excess funds are estimated to be $197 million the first year the plan is implemented.
With the Holmes’ plan the excess will be distributed; 10% to the Alabama Trust Fund increasing the amount available for General Fund Rainy Day Account, 25% to the Alabama Trust Fund increasing the amount available for the Education Fund Rainy Day Account, 25% to an Education Capital Project Fund, and 40% will be available annually for critical non-recurring needs appropriated by the Legislature. To the extent there is a remainder, the excess would go into the general corpus of the Alabama Trust Fund.
So, in essence, the plan will raise revenue (translation: raise taxes), but in return the state’s taxpayers are assured that growth in government is contained, priorities can be addressed and a fiscally responsible plan to grow savings is adopted so that the state will be prepared for another inevitable economic downturn.
The most intriguing part of it? It will be in the state’s Constitution. Future legislative bodies will not be able to simply ignore it when tough choices have to be made.
So what does the Alabama Forestry Association think about it?
“Obviously, when you are talking about change this dramatic, we will need to look carefully at the details. Clearly, we are not interested in the Band-Aid approaches that have been discussed and we certainly are not interested in raising revenue without some substantial reform measures being adopted. Representative Holmes’ plan appears to offer a thoughtful and meaningful approach,” said AFA Executive Vice President Chris Isaacson.
He went further to say, “I like the limits on growth, the required savings and the fact that all of it will be protected in the Constitution. We are interested to see what the economists predict the dynamic impact will be of putting $3.7 billion (income taxes not being paid) back into the state’s economy. Replacing a required income tax with a voluntary broadened consumption tax has a certain appeal to it. We look forward to seeing the plan in the form of legislation and we will make a decision at that point.”
Representative Holmes, on whether the plan would have a chance for serious consideration by the legislature, stated, “we have all been talking about really addressing systemic change, now is the time to have that discussion. It appears we will have a couple of months to get all the details out before a potential special session. We’ll see whether the state’s leadership is serious about truly fixing this mess we are in.”
Holmes is a member of a conservative group of House legislators that have been clamoring for meaningful reform to the way government is currently funded.
It will be interesting to see whether this group will coalesce around the Holmes’ Plan and whether the legislative leadership gives the alternative legitimate consideration.