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Do Low Taxes Produce Efficient Government?comment (0)

October 24, 2013

By Jim Williams


A recent Census Bureau report shows that Alabama remains the lowest-taxing state in the U.S. Tax collections in 2011 — both state and local — amounted to $2,904 per Alabamian, about 2.2 percent lower than the tax revenue in second-place South Carolina. But do we get our money’s worth for that investment?

Low tax collections don’t mean everyone’s taxes are low in Alabama. Property taxes, for example, are skewed so that utilities and businesses pay at a higher rate than farmers and homeowners, and low-income families pay higher state income taxes than they would in any other state.

The key impact from having the lowest tax collections per capita is that Alabama’s state, city and county governments and its public schools have less money to work with than their counterparts in every other state. For instance, Alabama’s public agencies in 2011 would have had another $324 million of tax revenues to invest in public services had our tax collections matched South Carolina’s on a per-capita basis. The other 48 states were farther ahead of us than that.

Alabamians expect results from their tax dollars, just as South Carolinians do. We want schools that produce graduates prepared for college and careers. We want smooth roads. We want effective police and fire protection. Since we provide fewer tax dollars, our governmental agencies can deliver good results only by being more efficient than others.

Unfortunately we do little to encourage efficiency. Alabama relies more than any other state on the earmarking of tax revenue. Under our law, 88 percent of the state’s tax revenue is doled out each year by pre-determined formulas. 

This creates no incentive to manage money well. Instead earmarking creates monopolies by guaranteeing money to favored agencies year after year, whether they spend it wisely or not. 

Efficient public services are produced by agencies that have goals and measure performance against them. Alabama has a model Budget Management Act that requires these things, but the governor and Legislature don’t follow it. An attempt to create such a “smart budgeting” process was abandoned recently after less than a decade of experience.

Alabamians will get a good return on the taxes we pay only when our elected officials see that smart budgeting is the necessary connection between low taxes and efficient government.  

EDITOR’S NOTE — Jim Williams is executive director for the nonprofit, nonpartisan Public Affairs Research Council of Alabama. Jim may be contacted at jwwillia@samford.edu.

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