My friend
Robert Stacy McCain is a great reporter,
but he really needs to stick with topics he has a longer history
covering, rather than just parachuting in to a state (that he was
not directly covering at the time and where he has not lived for
decades) and buying a pig in a poke.
Our frequent commenter Oldefarte is absolutely right that
lots of people have questioned how McCain’s favorite, Tim James,
made his money. But that’s the least of the problems with
McCain’s account. The way he describes the Riley tax plan in 2003
is unfair. I offer myself as a direct witness, as an editorial
writer and columnist for the Mobile Register at the
time. I bow to NOBODY as a Kemp-Reagan, supply-side tax cutter. I
was writing letters to the editor in support of Kemp-Roth back
while I was in high school, and have never once supported a
federal income-tax hike and have written repeatedly and publicly
for decades in favor of broad-based tax cuts. Yet I supported the
Riley tax plan. Why? Because in local context, it made a lot of
sense. Of course honest conservatives could disagree, but it was
anything but a typical “tax increase,” despite how McCain
described it.
Here was the deal: Alabama faced huge deficits and has a
balanced-budget requirement. Riley already had cut, largely
through administrative measures, about a whopping $350 million
from the budget in half a year, with more cuts proposed
legislatively. But he desperately needed a short-term bridge to
balance the budget.
This was PRECISELY the same situation Ronald Reagan faced
in his first year as governor of California, in 1967, and Reagan
acted in almost exactly the same way Riley did, with a short-term
revenue enhancement. Reagan later rebated a whole lot of taxes to
the people, after the initial crisis was over.
Back to Riley: Anyway, overall, Riley’s tax plan raised far
more money IN THE SHORT TERM than it would have “cost.” But it
did so in the context of one of the smallest combined
state-and-local government spending records in the country. Tim
James’ father had cut the state budget to the bone, and then
Democrat Don Siegelman’s spending hikes were largely taken back
through a process called “proration” when the economy temporarily
went bad. Meanwhile, among states that have property taxes,
Alabama’s property taxes were something like the second-smallest
in the nation. Its sales tax rates, though, were absurdly high,
and its exemption threshold for paying income taxes started at an
absurdly low $5,000 (well below the national average of about
$16,000). Plus, huge swaths of land were effectively off the
books because of what amounted to a huge exemption on taxes for
lands used for timber — even if the timberland wasn’t actually
being used in commerce, but just allowed to sit there as a nice
big, untaxed private preserve.
What all this meant was that Alabama’s tax system was
literally regressive — not regressive in the modern liberal
sense of not being “progressive” enough for liberal tastes, but
actually more burdensome on the poor than on the rich. Now I’m no
big advocate of progressive taxation. But I AM against, as should
be all conservatives, a situation in which the poor actually pay
a LARGER percentage of their income in taxes than the rich do.
Yet that was the case in Alabama. The low income tax threshold,
the low property taxes, the timberland tax exemptions, and the
high sales taxes (in Mobile, the sales tax was 9%, and 10% for
restaurant food), meant that the tax burden was upside down.
Several different independent groups did analyses, and while they
all differed slightly in how they crunched the numbers, their
basic conclusion was the same: The tax system was badly
regressive. At one end of the estimates, the lowest-income
Alabamians paid something like 9.5% of their income in state and
local taxes while high-income Alabamians paid only 7% or so; the
far end of the estimates looked even worse: low-income earners
paid as much as 11% while high-income earners paid just 4.5%.
Clearly, this wasn’t fair. Reform was desperately needed.
Finally, something like 90% of all Alabama tax revenues
were “dedicated,” by the Constitution, for one purpose or
another. And the super-powerful Alabama Education Association
owned more than half the state Senate, lock, stock and barrel,
which meant that the revenue source dedicated for “education”
spending amounted to the AEA’s own little bailiwick, with
legislators deliberately mislabeling non-classroom, or even
non-school-related items such as country music museums, as
“educational” so that they could hide all their pork and slush
funds in that account and use it also to pay off the AEA for
whatever the AEA wanted. Early this decade, even when the taxes
used for “general fund” revenues were incredibly tight, the
education fund sometimes was rather flush — but lawmakers could
not switch money between accounts, meaning the AEA kept its slush
funds and power base even as state law enforcement was cut to the
bone. As it was, the state police force at one point had only one
trooper to patrol every 180 miles or so of state highways. The
state crime labs were backlogged by as much as TWO FULL YEARS.
The court system was thus badly bottlenecked. Highway deaths were
rising rapidly. And all sorts of other basic governmental
functions were barely on life support. Riley desperately needed
to be able to move money from one account to the other depending
on how the economy affected each revenue source. In this case,
the general fund was starved even by all objective conservative
estimates. Even Gary Palmer of the very conservative Alabama
Policy Institute agreed with this basic fact of that the general
fund was in dire straits. (Gary thought at least some more
revenues were needed for the short term for the general fund,
although not as much more as Riley ended up proposing.)
So what Riley did was come up with a reform plan that cut
taxes for vastly more people than it raised them for — by
something like a 5-3 margin if I remember right. (i.e., it cut
taxes for something like 50%, kept them level overall for about
20%, and hiked them for about 30% of the populace). Even so, the
tax code would not have become progressive overall, but almost
exactly flat — exactly what conservatives have always said is
the ideal!
But overall, in the short term, the Riley Plan raised more
than a net $1 billion overall, mostly by raising the incredibly
low property tax rates, which is what financed the general fund
— and it made the NEW taxes “un-dedicated,” meaning their
proceeds could, for the first time, be moved among different
accounts. Even so, Alabama property taxes would have gone from
something like second lowest in the nation to something like
fifth lowest — hardly a terrible burden. And its overall
spending levels would have done likewise, still sitting among the
bottom six states in per capita spending in the nation.
And this was exactly when the second round, i.e., the
larger and more supply-side round, of the Bush tax cuts were
going into effect, so that EVEN FOR THOSE WHOSE STATE/LOCAL TAXES
WOULD GO UP OVERALL UNDER THE RILEY PLAN, THEIR COMBINED
LOCAL/STATE AND FEDERAL TAX LOAD WOULD BE SMALLER THAN
IT HAD BEEN JUST TWO YEARS BEFORE. In short, even for the 30% who
would have been moderately “hurt” by the Riley plan, their
overall financial situation, in terms of taxes, would be better
than it had been in 2001. No better time could be imagined to do
tax reform in Alabama than a time when a windfall was coming to
the very taxpayers, the minority of taxpayers, who would be hurt
by the reforms — especially when the windfall was bigger than
the new load. In sum, they wouldn’t even feel the pinch.
Finally — and here is the kicker — the Riley plan overall
had two more wonderfully clever assumptions underlying it. Riley
could not say it in public, but his idea was to do exactly what
Reagan did: Once the immediate budget crisis passed, he wanted to
give some of the money back to the public in a different form. In
year three or four, if the budget were balanced and especially if
the “rainy day fund” were replenished, Riley planned to bring to
the people a proposal to cut the state sales tax by 1/2 cent (or
perhaps more). After adding to the amount of money available for
use in whichever fund is needed, rather than being dedicated to
just one narrow use, he could afford to cut the “education” fund
by a small amount so it wouldn’t provide quite such a power
base/slush fund in the effective control of AEA. (How bad is AEA?
It even opposed criminal background checks for teachers!) Help
the taxpayers, while de-funding the AEA! What a great
idea.
The second assumption behind the entire effort was to
position himself politically in two ways more helpful to the
state as a whole than to himself. First, if the plan did NOT pass
— as it didn’t — it would show once and for all that fiscal
rectitude was the only option left. “Hey, guys,” he could and did
say (I’m paraphrasing here), with a big smile on his face, “I
hear you loud and clear. You want government to live within its
means, not by grabbing more of your means. I tried the big reform
package, and you didn’t like it, and I’ll listen. I’ll do what I
can in the future in piecemeal fashion, and let you weigh in on
it each time, but meanwhile we are going to have the leanest
government you have ever seen — and that’s a good thing.” In
short, Riley took ALL tax hikes off the table for years by
letting the voters themselves send even a carefully crafted
reform plan to a crashing defeat. So by bringing the reform
package to the people as a constitutional amendment, rather than
trying to pass a tax hike through mere statutory means, Riley
ensured that now ALL state politicians would be loathe to raise
taxes in ANY fashion without getting clear popular approval for
it. (Later, he actually did raise the income-tax exemption
threshold, thus cutting taxes slightly for every single Alabama
taxpayer.) Second, by putting himself on the line so much for the
“reformist” or “goo-goo” (“good government”) crowd, he earned the
undying support of the goo-goos, even many of those who were
ordinarily center-left. He therefore made sure that their
suspicions of the motives of a conservative Republican governor
were almost entirely dissipated, meaning he could push
conservative reforms for the rest of his term, on all sorts of
fronts, without taking flak from basically high-minded goo-goos
who might otherwise have assumed that the “reform” part of
“conservative reform” was a mere mask for “radical conservative.”
In other words, they would actually consider his reforms on the
merits rather than fighting against them from the start. Since
goo-goos tend also to be fairly high-finance folks
(chablis-and-bris center-left, at least some of them), it meant
Riley could pursue reforms without having a bunch of money spent
fighting him out of mistaken assumptions about his
motives.
In all, the Riley Tax Reform attempt was a great thing for
the state. Even in failure, it served good purposes. And if it
had passed, it would have served other good purposes. It was a
win-win.
The acid test, in the end, was how voters responded. In
conservative Alabama, if what Riley had tried was so obnoxious,
the voters could refuse to re-elect him. Instead, even in the
overwhelmingly Democratic year of 2006, Alabama voters re-elected
Riley by giving him 59% of the vote — an immense
landslide.
As for Tim James, I have found him singularly unimpressive,
a guy who tries to act tough and throw his weight around because
his daddy was governor.
The front-runner for governor this year, Bradley Byrne, is
a solidly reformist conservative — with a proven record of
accomplishment, integrity, fiscal conservatism, traditional
values, and tough and successful stands against entrenched,
corrupt interests on multiple fronts. Yeah, he was for Riley’s
tax plan — and he was right. He also
fought repeatedly against government waste, for
lower taxes overall, against the AEA, and in favor of
governmental transparency. Neither he nor Riley deserve the
back-of-the-hand treatment that McCain gives them. As a 30-year
veteran of the conservative movement, I vouch for Byrne
entirely.
