March 21, 2011 | Editorial by Rep. Dexter Grimsley
That is what it feels like in the Legislature as we move to cut the salary of teachers, gut important health programs for seniors, increase elementary class sizes, slash budgets of prisons and public safety, and start another round of layoffs. The leadership in the House and Senate say over and over again there is no choice, the recession has devastated revenue, and we have no alternative but to cut and cut again, even after years of the worst cuts in modern state history.
Yet, figures from the Alabama Department of Revenue indicate there is another choice, and it is up to us whether we will do what is necessary for our schools and taxpayers of the state.
The economy has started to pick up. Alabama unemployment has declined steadily for the past months, consumer spending is increasing, and there many more signs of the green shoots of the recovery springing up everywhere around the state.
In the rebound we have started to see recovery in revenue, but it is not enough to overcome the huge losses incurred since the downturn began in 2007. A main problem is that the revenue recovery is very uneven, and in that disparity there is a larger story.
Individual income tax, the kind that you and I pay, is up substantially from last year while corporate income tax, the kind major out-of-state companies pay, is down from last year.
You would expect that individual and corporate income tax would rebound at roughly the same rate. Certainly you would expect in a time of record corporate profits, when companies like ExxonMobil made more money than ever last quarter, that Alabama corporate income tax would at least go up somewhat, certainly not the decrease as we have seen. Yet, state data shows otherwise. What is going on?
Major out-of-state corporations have learned to game our state income tax system, and they now pay less in income tax than does the average working person or small business.
Back in 2003, Exxon made $89 million in Alabama and yet paid no state income tax. The problem had become so epidemic that in 2005 more than 1,000 major companies made an income of $105 billion and paid not one penny in Alabama state income tax earmarked for education.
Major corporations are able to get away with not paying their fair share by using shell games, gimmicks and dodges to play fast and loose with our state tax laws.
For example, back in 2008 the Legislature tried to shut down a corporate shell game called a Real Estate Investment Trust. It was the practice of multinational companies, many of them major retailers, selling their Alabama property to wholly owned subsidiaries in other states then paying themselves a high rent as a huge tax write-off. After a long fight this loophole was closed, or so we thought.
Now there are indications that the armies of tax lawyers and accountants these major corporations have found a way around that fix and others. The clear sign of a continuing problem is that corporate income tax is down though their profits have certainly gone up.
The idea that the only choice is between cutting teacher salaries or cutting teacher jobs is false. The real choice is between hurting teachers or making a company like ExxonMobil pay state income tax just like local small businesses do. We can choose to hurt senior citizens and punish schoolchildren, or close the loopholes and stop the gimmicks out-of-state corporations use to pay no state income taxes.
The facts are clear about how corporations game our state tax system. Now our choice is clear on what we should do next.