Justin Bogie: The truth behind Alabama’s ‘most conservative Legislature’ ranking
According to a recent ranking from the Conservative Political Action Coalition’s (CPAC) Center for Legislative Accountability (CLA), Alabama’s state Legislature was the most conservative in the United States in 2021. Alabama scored a total of 74 out of 100 points, edging out Tennessee and Indiana for the top spot. Based on the past four years, does this come as a surprise to you? It does to me. The CLA identified local empowerment and education as two of the “strongest issues” for the Alabama Legislature. This alone should be enough to raise questions about the validity of the rankings. As is well documented, Alabama has perhaps the longest and most complicated constitution in the world. Of nearly 1,000 constitutional amendments, over 750 apply to only one county. This is the direct result of local governments and the citizens they represent not being empowered to make their own decisions. On education, Alabama consistently ranks near the bottom in national test scores. Few Alabamians would say that it is a strength statewide. On average, the CLA found that 74% of the monitored votes cast during the 2021 regular legislative session to be conservative positions. The question we should be asking though, is what votes were considered in the ranking, and just as, if not more importantly, what votes were not used in calculating the scores? The CLA used voting records for 44 bills to determine that Alabama was the most conservative Legislature in 2021. If you consider similar bills introduced separately between the House and Senate, the list of individual issues is much smaller. Moreover, many of the bills selected by the CLA did not actually become law. There were a total of 1,500 bills introduced during the 2021 session. The bills chosen by the CLA were heavily weighted towards election integrity, protecting the rights of the unborn, transgender issues, and second amendment rights. In other words, they focused primarily on social issues. That is not to say that none of these bills are important, but can you really declare a Legislature to be the most conservative in the country without a more diverse sampling of bills? Most people would agree that Alabama is a socially conservative state. But being socially conservative does not equate to the state exhibiting conservative behavior in all aspects. Without a closer examination, the CLA rankings would lead you to that conclusion. Some of the bills used by the CLA include the legalization of nighttime hunting of coyotes and feral swine, permitting wineries to operate in dry counties, and allowing restaurants to determine whether dogs can be allowed in outdoor dining areas. I am sure that these issues are important to some Alabamians, but are they the most important issues to most Alabama voters? I would think not. Missing from the list were any bills dealing with Alabama’s state budgets, spending, and taxes. If they had been included, my guess is the rankings would have come out quite differently. Despite the dubious methods used to calculate Alabama’s number-one ranking, lawmakers were quick to pat themselves on the back. Senate President Pro Tem Greg Reed (R-Jasper) said, “Since the Republicans assumed majority in 2010, it has been our focus to fight to keep our conservative values that this country was based on.” House Speaker-designate Nathaniel Ledbetter (R-Rainsville) (who ranked 57th in the House) added that “Most Alabamians believe strongly in traditional values and commonsense conservative policies, and the bills and resolutions we pass as lawmakers mirror those widely held beliefs and values.” Over the past four years, Alabama’s state government spending increased by about 36%, a faster growth rate than California or New York, who ranked 47th and 44th on the CLA list, respectively. California’s score was 24 out of 100, 50 points lower than Alabama’s. Given that Alabama is growing government at a faster rate than California, the difference in the two states’ scores is puzzling, to say the least. Again, the CLA took no consideration of tax policy in its rankings. In 2021 Alabama’s government took $1.5 billion more in taxes from citizens than it needed to cover state budget expenses. Less than 5% of that surplus found its way back to citizens in the form of targeted permanent tax cuts. Yet Alabama is supposedly the most conservative Legislature in the country? Despite Alabama’s top ranking, the CLA identified taxes, budget, and spending as the state’s weakest issues. Yet Sen. Reed said, “As a result of our fiscal conservative policies we have implemented, Alabama has one of the strongest economies in the nation. I am proud of this recognition and to serve with my colleagues in continuing to protect and promote the conservative Alabama values that define this great state.” Taking and spending more of Alabamians’ money than at any point in recorded history does not represent “conservative Alabama values.” It is the opposite of what many Alabamians believe in, regardless of what the CLA’s rankings say. The problem with rankings like these is that too many people will simply read the headline and assume everything is going great. Lawmakers hope that is what you will do so that they can continue the historic expansion of Alabama’s state bureaucracy unchecked. It is our duty as citizens to do our own due diligence and separate fact from fiction. The consequences are too great to bury our heads in the sand and accept the status quo. Justin Bogie serves as the Alabama Policy Institute’s Senior Director of Fiscal Policy.
Justin Bogie: Permanent tax relief is ‘very important’ to Alabamians
Appearing Friday night on Alabama Public Television’s “Capitol Journal,” State Senate President Pro-Tem Greg Reed (R-Jasper) said that Alabama’s record $2 billion revenue surplus was a “one-time thing” and should not be spent like “water through our fingers.” The fact is that Alabama’s record surplus is not a “one-time thing.” State government finished 2021 with a then-record $1.5 billion in new revenue. It continued to build on that wealth, on the backs of citizens, in 2022. In fact, for four years in a row, the state has had revenue surpluses of at least $600 million. What did lawmakers do with the money? They used it to increase spending all four years. Reed went on to expand, saying that the influx of dollars into state government will not continue. He warned, “We’re already experiencing what we see at the national level and even in our own state. Inflation; that is a real challenge – and economic opportunity that may be facing a recession in the future. So, as you look at these resources being extraordinarily high, you have to think about do we need to give some of these resources back to the people of Alabama?” Senator Reed is correct in saying that record inflation and the threat of a recession are already having an impact in Alabama. The problem is that the focus seems to remain on protecting government from these problems, not those they represent. At a minimum, Alabama’s government and the people that it serves should be sharing in the pain. That has not happened thus far. Judging by Reed’s comments last week, the hopes of that dynamic changing remain dim. First and foremost, Senator Reed said that the current budget surplus should be used on things “that are very important to our state.” He said that only after that should looking at ways to provide relief to Alabamians be up for discussion. For Alabama families being crushed by inflation and high gas prices, I would think tax relief is “very important” to them. Unfortunately, the mindset of too many elected officials still seems to be that the government comes before the people. Comments by Gov. Kay Ivey last week, that all but ruled out any form of relief besides a limited tax rebate, did not help to embolden lawmakers to push for broader tax reforms. The argument that an economic recession is coming, and the state must be fiscally responsible to weather that storm, does not line up with the actions of the legislature over the last four years. From 2019-2022, state spending increased by about 35%, a record expansion of Alabama’s government. Despite already experiencing decades-high inflation and the very real threat of a recession, lawmakers passed the largest budgets in state history in April 2022. Given the now multi-billion dollar revenue surplus and recent comments from lawmakers, there will be heavy pressure to increase fiscal year 2023 spending through additional appropriations. You cannot claim that we are running up on a cliff and need a parachute to ensure a soft landing, and then spend all your money on other things and not buy the parachute. State government did not put all of last year’s $1.5 billion into reserves for a rainy day; it spent most of it, with less than 10% going towards “targeted” tax relief – targeted meaning that many citizens saw no benefit. The truth is that providing tax relief for citizens, as well as preparing for a recession, does not have to be mutually exclusive. Last month, the Alabama Policy Institute (API) called on lawmakers to enact a minimum of $750 million in permanent tax cuts during the next special or regular legislative session, less than half of the current surplus. In a perfect world, lawmakers would also cut or at least freeze spending at the current levels. If, after cutting taxes surpluses remain, that money should go towards retiring existing state debt or paying for essential one-time projects of significant benefit to citizens. Lawmakers cannot squander this remarkable opportunity to make structural reforms to the state’s tax code and budget process. If Alabamians are ever going to see meaningful economic relief, it must start at the top. Governor Ivey and the leadership of the Alabama Legislature must make tax reform the number one priority moving forward, not an afterthought once the state has taken a significant cut of the latest record-breaking surplus, which all taxpayers funded. Most Alabama families did not have close to a 15% surplus last year, let alone two years in a row. It is past time for state government to provide permanent tax relief and return some of our money back to Alabamians. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: Another ‘record’ surplus in 2022 proves that Alabama can afford historic tax relief
Last Friday marked the end of the 2022 fiscal year. For the Alabama state government, it was another record-breaking year. In 2022, the state took more tax dollars from citizens than ever before, ending the year with a $2 billion revenue surplus. In total, state government collected more than $13 billion in revenue in 2022 (for context, collections totaled $8.6B in 2019), shattering the previous record set in 2021. As the state heads into 2023, the question is, what will Governor Kay Ivey and the legislature do with its record surplus? Will they finally provide much-needed tax relief to Alabamians, or will they continue to tell us all the reasons they can’t, including that it would not be the fiscally responsible thing to do? The numbers speak for themselves. The state has the resources available (provided by you, the taxpayer) to provide long-term, meaningful tax relief to Alabama’s citizens and job creators. But will they be willing to stop the unprecedented growth of spending to make that a reality? Consider the numbers. In 2022 the state’s Education Trust Fund (ETF) collected over $10.4 billion in revenue, a 20.5% increase from 2021. Increases in individual and corporate income tax receipts accounted for over $1.5 billion in new revenue last year, increasing by 24.7% and 41.9%, respectively. The state collected almost $1.2 billion more from individuals in 2022. The State General Fund saw more modest growth of 8.4% when compared to the ETF but still finished the year with a $216 million revenue surplus. The state’s simplified sellers use tax, which the state began collecting only a few years ago, continued to skyrocket in 2022, bringing almost $233 million to the state general fund. Do not forget, there is still $1 billion in federal American Rescue Plan Act funds that the state is yet to spend. That is on top of the 2022 revenue surplus. You get the picture. While many Alabamians struggled with inflation, high gas prices, and economic uncertainty in 2022, the state had its best year ever. At least 32 states have provided some form of tax relief to citizens in 2022. Yet, in Alabama, we continue to wait for widespread relief. Given the mountain of cash our state government has at its disposal, if now is not the time to provide historic tax relief to citizens, when will it ever be? I wish I could say I was confident that structural tax relief was in the cards soon but judging by recent comments from Governor Ivey and other lawmakers, it is hard to be optimistic. On Monday, Ivey released a written statement reflecting on the state’s revenue surplus and general budget conditions. First, she credited the state’s “conservative management of our budgets” for placing Alabama’s government on strong financial footing. Unless the definition of conservative has drastically changed recently, taxing and spending more money than ever is not conservative. She blamed “reckless” federal spending for Alabama’s current prosperity and warned that she foresees an economic downturn on the horizon. Ivey used this as her reason that the state “cannot make permanent structural change” to the tax code. Instead, she endorsed “some form of rebates” but gave no indication of how large or small scale she envisions rebates being. Other state lawmakers have echoed similar sentiments this week. They appear to be coalescing around the idea that a downturn is on the horizon, meaning that the state can only afford temporary relief like a rebate, not permanent reforms. This is a misguided notion. The state has more than $3 billion in reserve funds that have sat untouched for more than a decade. Both the ETF and SGF have additional reserve funds that could be accessed if there is an economic downturn. Just last month, a report by Moody Analytics indicated that Alabama was well-equipped to handle a recession in the next two years without having to cut spending or increase taxes. Unless there is a historically long recession, Alabama’s government can provide tax cuts to citizens and be stable through a typical economic downturn. On average, U.S. recessions have lasted about 17 months. After taking so much money from citizens over the past few years, a limited tax rebate is not good enough. By sending a small check in the mail to Alabamians, the money will be gone and quickly forgotten. A rebate should truly be the last option, not the default option. Our lawmakers must think bolder. The Alabama Policy Institute recently proposed $750 million in permanent tax relief for Alabamians. The options to achieve that goal are numerous, including repealing the state tax on groceries, lowering individual and or corporate income tax rates, and adjusting sales tax rates, among others. While so many Alabamians have struggled over the past few years, our state government has profited on the backs of those same citizens more than ever. We must demand permanent tax relief from our lawmakers. It is time for the people of Alabama to come before its government. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: Lower taxes, better education are keys to attracting business to Alabama, not incentives
The Alabama Jobs Act is set to expire on July 31, 2023, meaning that economic incentives could be a major topic of interest during next year’s regular legislative session. The chatter has already begun. Last month, Alabama Secretary of Commerce Greg Canfield told a state economic incentive oversight committee that he thought the act should be extended and the current annual credit cap of $350 million should be removed. But is handing out hundreds of millions of taxpayer dollars in economic incentives to large corporations each year sound fiscal policy? More importantly, are there other steps Alabama can take to make itself more competitive in attracting new businesses compared to neighboring states? If you are unfamiliar with the Alabama Jobs Act, it was first authorized by the Legislature in 2015 and provides payroll and investment credits to qualifying business projects that, with some exceptions, create at least 50 new jobs in the state. The program was reauthorized during the 2021 regular session, and the current cap on credits is $350 million per year. The law specifies that $20 million per year must be targeted to counties with populations less than 25,000. Before thinking about expanding or removing the cap on incentives, the first question legislators should ask is this: do economic incentives work? Evidence suggests that they do not. A 2019 report from the Mercatus Center at George Mason University found state and local governments nationwide give out an estimated $95 billion in economic incentives per year. In contrast, those same governments in total collected less than $66 billion in corporate income taxes in 2019. A supposed benefit of economic incentives is that it will create new jobs in Alabama. According to the Brookings Institution, on average, only 10-30% of the new jobs created through economic incentives end up being filled by state residents who are unemployed. Many of the new positions will end up being filled by Alabama residents who are already working or from new employees coming from outside the state. This means the cost of public services inevitably rises. Brookings estimates this increase in the cost of services offsets any increased tax revenues from wages by at least 90%. Incentives are particularly ineffective in states with low unemployment rates, where at best, citizens who are already employed will shift to a different company or career. Alabama’s unemployment rate is currently at a record low of 2.6%. Another downfall of economic incentives is they allow state and local governments to pick winners and losers. It means that companies already conducting business in the same industry as a new company that moves to Alabama will be paying higher tax rates. All Alabamians pay the price. The state does not just give away $350 million in tax incentives every year. The money is recouped through a higher tax burden on not only other corporations but citizens as well. Economic incentives also favor large corporations over small businesses. A 2015 study by Good Jobs First found big businesses received 90% of state and local economic incentives. In most cases, at least 50 new jobs must be created to receive incentives in Alabama. What does that do for the small family-run business that employs ten people? They are already at a disadvantage compared to larger companies. Economic incentives aimed at large corporations make it even harder for small businesses to survive. Instead of giving out more economic incentives, Gov. Kay Ivey and the Alabama Legislature should be looking for ways to fundamentally make Alabama more competitive with neighboring states in attracting new businesses. The two primary areas of focus should be tax policy and education. In terms of corporate income tax rates, Alabama’s rate is higher than Georgia, Florida, Mississippi, Arkansas, South Carolina, North Carolina, and Kentucky in the Southeast, making it one of the worst in the region. Lower corporate tax rates mean lower costs of doing business in the long term, not just during the period of economic incentives. It levels the playing field for both small and large companies. On the individual income tax side, Florida and Tennessee have no income taxes. Georgia and Mississippi have already enacted legislation to reduce rates over the next few years. If Alabama wants to be competitive and incentivize citizens to remain living and working in Alabama, it must follow suit. There is also the issue of education. Businesses considering moving to Alabama need a qualified workforce if they are going to be successful. Alabama consistently ranks near the bottom in national test scores and the worst in the Southeast, well below Florida, Tennessee, Georgia and Mississippi. A recent column by former Alabama State Superintendent of Education Joe Morton highlighted that in 2021, 16% of Alabama’s high school graduates were not college or career ready. He asked, “What signal does it send to business and industry?” Not a good one. These are the issues Alabama’s government should be focused on improving if it wants to attract new businesses and keep existing businesses in Alabama. They do not want handouts. They want lower taxes, less government interference, and a capable workforce. Economic incentives should be Alabama’s last resort in securing new businesses. Lower tax rates and a better-educated workforce will be enough incentive. It will also improve the lives of all Alabamians. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: Excuses are easy — Meaningful policy change takes bold leadership
As summer turns to fall, the drumbeat for the Alabama Legislature to enact meaningful tax reform legislation has picked up its pace. But there is still no action — only discussion of temporary relief and the same old excuses as to why long-term reforms will be challenging to pursue. While major policy reforms are rarely easy, it should not be this hard. The state is likely to begin 2023 with a more than $2 billion revenue surplus, building on last year’s then-record $1.5 billion surplus. When Alabama’s government has more revenues than at any point in history, providing long-term relief to citizens should be a no-brainer. But despite having a Republican super-majority legislature and Republicans elected to all state-wide offices, Alabama continues to fall further behind other states when it comes to tax reform. Citizens are paying the price. Part of the problem is a lack of strong leadership. In August, Governor Kay Ivey’s spokeswoman, Gina Maiola said, “Right now, Alabamians and Americans alike are feeling the pinch, though, and Gov. Ivey wants to be able to help Alabamians in whatever ways we can.” I am glad that Gov. Ivey recognizes that Alabamians are feeling the pinch of inflation, but where is the action? She alone has the power to call legislators to Montgomery for a special session. Ivey could do that within days, but it seems apparent that there is unlikely to be any real movement on tax reform until at least next March, when the 2023 regular session begins. Meanwhile, 32 other states have enacted tax relief legislation this year. Missouri is currently in the midst of a special session, called by Gov. Mike Parson, aimed at passing $700 million in permanent tax cuts. That is what we need in Alabama. Instead, we are getting more excuses. Just last week, General Fund budget committee chairman State Sen. Greg Albritton (R-Atmore) said, “While y’all are focusing on how flush it appears that we are, I’m looking at what the problems are and how we’re going to resolve them.” First, the state does not appear flush with cash. It is flush with cash. In the past two years, it has collected more taxes from Alabamians than ever before. Instead of using that cash to take less money from citizens in the coming years, Albritton suggested that the best way “to help people in the long run in perpetuity is to take that money and put it into a trust account much like the Alabama Trust Fund (ATF),” and then use that fund for education. Alabama already has numerous trust funds and budget savings accounts that are intended to ease the impacts of an economic downturn. The state could draw more than $850 million from the ATF alone in 2023, if necessary. The state has not touched the account, which has a total balance of more than $3.35 billion, since 2012. Even during the onset of the COVID-19 pandemic, the reserve funds remained untapped. It was a rainy day for many Alabamians, but not for the government. The state does not need another savings account. The idea of establishing one shows how out of touch lawmakers are with Alabamians. When a recession hits, the government should not be protected at the expense of citizens. It should at the least be sharing in the pain. Another argument made against tax reform is that Alabama’s current stretch of strong economic growth will not last, and the record high surpluses are because of conservative budgeting. Legislative fiscal officer Kirk Fulford recently said, “You were conservative in both of those budgets, and because of that, and because of the enhanced federal money that came into the states, you are going to wind up with ending balances in both budgets that are far and above greater than any you’ve had in quite a while.” I am sorry, but would most Alabamians describe increasing spending at a faster pace than California or New York as remotely conservative? I do not think so. In April, Gov. Ivey praised the Legislature for sending her the “sixth consecutive balanced budget” she has signed as governor. It is easy to balance a budget when you are taxing citizens more than ever. A balanced budget in and of itself is not a sign of conservatism or fiscal responsibility. In Alabama’s recent history it represents the historic expansion of government. More taxes from you have kept the budget balanced. There is also the argument that inflationary pressures may prevent the state from being able to afford to provide long-term tax relief. In August, Representative Steve Clouse (R-Ozark) said, “We want to see if maybe the budget we passed and goes into October is adequate enough on the inflationary pressures hitting right now.” Again, shouldn’t the pain being felt by Alabamians outweigh any hardships felt by the state government? Moreover, the inflation argument makes little sense. Inflation was 8.3 percent when the two state budgets were enacted in April. At the end of August, it was still 8.3 percent. If the Legislature really did pass conservative budgets just five months ago, inflation should already be accounted for. The bottom line remains that Alabama’s state government has more of your taxpayer dollars flowing into it than ever. Instead of looking for excuses to not provide relief to citizens, it is time for bold leadership and action. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: Alabamians deserve more than a one-time tax rebate
“I think they deserve it.” That is what House Majority Leader Nathaniel Ledbetter (R-Rainsville) said last week when asked about the possibility of using state government’s record revenue surplus to provide Alabamians with a one-time tax rebate. And he is right. The people of Alabama do deserve relief from over-taxation, near record-high inflation, and high gas prices. It is a good thing that the House Majority Leader recognizes that. But they deserve so much more than only a one-time rebate check that will provide only limited economic relief. They deserve permanent tax reforms that will provide benefits to Alabamians for decades to come. To recap, last month, State Senator Arthur Orr (R-Decatur) began floating the idea of giving a one-time tax rebate to Alabamians as a way to “send money back to the people.” Since then, other lawmakers, including Ledbetter, have indicated their support for the proposal. Other than Orr saying the rebates should be “substantial,” there is no indication of the target in mind. According to the Tax Foundation, as of July 2022, 11 state legislatures have chosen to return revenue surpluses to citizens through tax rebates. Rebate amounts ranged from a low of $50 to a high of $850. However, over the same period, 11 states enacted legislation to permanently reduce individual income tax rates, and eight states passed corporate income tax reductions. Fourteen states reduced corporate and/or individual income tax rates in 2021. Four of the states offering tax rebates to citizens also enacted individual income tax cuts in 2022. If Alabama lawmakers are determined to go the tax rebate route, then in conjunction with other long-term tax cuts is the only acceptable way. There are several reasons that Alabamians deserve more relief than one-time rebates alone will provide. First, rebates will not slow the unprecedented growth of state government. By the end of 2022, Alabama’s government is on pace to spend nearly $11.7 billion, 35.5% growth since 2019. Through August, the state already had about $1.7 billion more in cash on hand than it needs to pay existing obligations through September. The last few years have proven that the more money our state government takes from citizens, the more it will put back into itself. That is not what Alabamians, who elected a conservative supermajority to the legislature just four years ago, want. Most would claim that they want a smaller government with less interference in their personal lives or businesses. If steps are not taken to reduce the number of tax dollars flowing into state government, it will continue to grow year after year. What amounts to a one-time stimulus check will not curb the growth of Alabama’s state government. It will merely allow lawmakers to take credit for doing something to provide relief to citizens and then get back to the business of spending your money. Beyond the problem of doing nothing to stop the growth of state government, rebate checks could make economic conditions worse in the short run. The federal government sent out numerous rounds of stimulus checks in 2020 and 2021 under the guise of pandemic relief. However, there is little dispute that the stimulus checks stoked inflation, impacting the same people the money was intended to help. They also provided another disincentive to work. Rebates are a political tool with few consequences for government and little benefit for Alabamians. Kansas lawmakers went so far as to call Democratic Governor Laura Kelly’s rebate plan a “gimmick.” Unless Alabama lawmakers use all the available surplus funds in 2023 for rebates, which is unlikely, it will not even stop government from expanding next year. They could also add fuel to the inflation fire, lowering the purchasing power of your money. Of course, more government spending will have the same effect. The best path forward for providing tax relief to Alabamians is through lower tax rates. A rebate could be a complimentary piece to a broader tax reform package but is not a substitute. Last week, the Alabama Policy Institute (API) called on Governor Kay Ivey and the Alabama Legislature to enact a minimum of $750 million in permanent tax cuts for citizens. This could be achieved through a combination of individual or corporate income tax rate cuts, full elimination of the state’s 4 percent sales tax on groceries, repealing the $.10 gas tax increase, or other options outlined in API’s 2023 policy platform. Revenue surpluses in excess of $750 million each year could be returned to citizens through a rebate. Hardworking Alabamians deserve permanent tax relief that will allow both individuals and industry to flourish for generations to come. They do not want merely a one-time handout. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: Colleges and universities must increase the value of an education
The annual cost of a college education has increased by 182% in the past 40 years. But are college graduates getting more for their money? It’s a fair question to ask in the wake of President Joe Biden’s announcement that up to $20,000 in student loan debt will be forgiven by the federal government. And that is just the beginning, with additional provisions that limit repayment liability. There are several obvious issues surrounding the student loan forgiveness plan. There’s the cost, which the University of Pennsylvania estimates could reach as high as $1 trillion. Creating another trillion dollars in federal debt will do nothing to provide Americans relief from near-record inflation. Fairness is another issue with the loan forgiveness plan. Is it fair for the 62% of Americans who do not have college degrees or others who do not qualify for forgiveness to have to pay for someone else’s education? There is also the bigger message that student loan forgiveness sends to young Americans. You are expected to repay the money when you take out a loan for a house or car. If you do not, your house will be foreclosed. Your car will be repossessed. You (should) know these realities when you sign on the dotted line. Why should a legally binding student loan contract be any different? It is another example of Washington eroding Americans’ sense of personal responsibility. These issues have been discussed at length in the past week. But what about the broader question of the value of a college education and the motivation to work? Let me start by saying I am not trying to undermine the benefits of higher education. But not every high school graduate needs or should be expected to go to college. For some students, the financial burden will never match the benefits. In 2022, an estimated 20 million Americans were enrolled in college. Since 1960, enrollment amongst high school graduates has increased by 47%. Eighty-three percent of first-year college students are enrolled full-time. As college enrollment has increased, so have the costs. In 1980, the annual average inflation-adjusted cost of tuition, fees, and room and board was $10,231. By 2020, the average cost had almost tripled, reaching $28,875 per year. Why have the costs increased? Part of the increase is due to the student loan system itself. Federally subsidized loans are so readily available that the guaranteed money has led higher education institutions to increase tuition prices. Because of the accreditation process required for a school to be eligible for federal loans, it’s hard for new competition to enter the education marketplace. There are few checks and balances and little transparency on educational costs, giving institutions no incentive to lower tuition. The number of majors offered by universities has also seen a sharp increase. In an effort to attract new students, from 2012-2018, higher education institutions added 41,446 degree or certificate programs. That means more administrators, professors, support personnel, and classroom space were needed. All at a cost. There should be a direct relationship (and an accelerated one at that) between the costs of higher education and the benefits. As the cost rises, the financial benefits should increase at a faster rate, but that is not what is happening. The average inflation-adjusted starting salary for a bachelor’s degree level graduate peaked at $59,169 in 1969. In 2022 new graduates can expect to make just over $55,000 per year. While the costs of a college education have tripled, starting salaries are 6.5% lower than their peak. The average salary for all Americans in the 25-34 age group, regardless of education, is $49,920 per year. Evidence suggests that the expectations of new college graduates do not match reality. A 2022 survey conducted by Real Estate Witch found that students expect to make $103,880 in their first job, nearly double the national average. Just this week, the U.S. Department of Education announced that it would cancel $1.5 billion in student loan debt for 79,000 borrowers who had attended Westwood College. The department found that Westwood “grossly misrepresented” the value of its credentials and students’ earning potential. If students had known that reality did not match their expectations before enrolling in college, would they have paid an average of $115,500 to do so? Student loan forgiveness will make it more expensive for all Americans to attend college, without increasing the benefits. Instead of wiping away debt at the expense of taxpayers, higher education institutions should focus on improving the return on investment. The market value of a degree must exceed the costs. That means eliminating majors with no real-world value or applicability. Government should focus on providing alternatives to higher education, such as apprenticeships or teaching trades at the high school level. College is not the only path to a successful and prosperous life. A degree guarantees neither of those things. Student loan forgiveness amounts to a taxpayer-financed bailout for higher education. It goes against the principles of hard work that America was founded upon. At its core, it is un-American. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: Systemic problems making it difficult to both work in and attract new workers to Alabama
At the end of July, Alabama’s labor force participation rate was 57.2%. The national average was 62.1%. Just four states rank below Alabama. When Alabama’s labor participation rate is low, we all pay the price. Businesses continue to struggle with staffing issues. The worker shortage is contributing to near-record-high inflation, putting added stress on the budgets of Alabama families. Government created the problem by putting barriers in place to enter the workforce and by providing economic disincentives that make it more appealing for some citizens to stay home. Our state government should be making it easier for Alabamians to work in their chosen field, not continuing policies or considering new policies that will make working less appealing. To be fair, a decrease in the labor participation rate is not always a bad thing. When average wages are up, it could mean that one member of a family has the freedom to choose whether they want to work, rather than work being a necessity. The inverse is also true, meaning that when average wages decrease, some lower wage earners will exit the workforce if government assistance is available. The point is that anyone who wants to work should have the opportunity to do so without government interference or disincentives. Labor force participation is defined as the percentage of the population that is 16 or older and is employed or was actively looking for a job in the previous month. The difference in the labor participation rate and 100% represents the able-bodied work-aged population that has not sought employment in the past month, which is 42.8% in Alabama. By contrast, Alabama’s currently record-low unemployment rate does not account for individuals who are no longer looking for a job. While unemployment may be at the lowest level in history, there are also a near record number of people who have left Alabama’s workforce altogether. Earlier this month, Gov. Kay Ivey said there are “more people working than ever before.” That is true strictly by the numbers but reflects the state’s growing population, not increased participation. Alabama’s labor participation rate peaked at 65% in the late 1990s and has been on a downward trajectory ever since. It continues to struggle to recover to its pre-pandemic level. The short-term reduction in labor participation can be attributed in part to a wide variety of assistance programs provided under the guise of COVID-19 relief. There were multiple rounds of stimulus checks and months of enhanced federal unemployment benefits that made it more lucrative for some employees to stay home. Alabama’s government continues to dole out hundreds of millions of dollars in federal rental assistance. Just this week, the Biden Administration announced that it will forgive up to $20,000 in student loan debt, which may serve as another disincentive to work. While pandemic relief and recent federal policy decisions may explain the short-term stagnation of Alabama’s labor participation rate, there are systemic problems that make it more difficult to both work in and attract new workers to Alabama than in other states. One of the biggest barriers to entering the state’s workforce is occupational licensing. According to a 2018 report from the Alabama Policy Institute and Troy University, Alabama ranked 47th in the country in terms of having the most burdensome occupational licensing laws. It is estimated that licensing requirements cost the state almost 21,000 jobs per year. Occupational licensing is an expensive and onerous process. Beyond the initial costs and educational requirements to become licensed, many professions require annual license renewals and ongoing continuing education. It goes without saying that some occupations should require a license. However, public safety should be the goal of any occupational licensing requirement, not making money. There are other reforms that state government should pursue to incentivize workers and businesses to operate in Alabama. If individual income tax rates are lower, workers will take home more of what they earn. Government cannot make it more profitable to not work than work. Reducing corporate income taxes will make Alabama’s rate more competitive with neighboring states and allow businesses to further invest in the state’s workforce. The ability to keep more of what you earn would be a major incentive for both individuals and businesses to work in Alabama. Georgia, Florida, and Mississippi each enacted corporate or individual income tax cuts over the past year. Alabama is in direct competition with those states for workers and businesses. The same can be said of education. Having a top-tier educational system would provide another big incentive for workers and corporations to come to Alabama. As of now, the state remains near the bottom of most national education rankings, while Florida is near the top and Mississippi and Georgia perform well ahead of Alabama. Quality of education is an important factor for many families thinking about relocating to the state. It also impacts the quality of the workforce that potential businesses will pull from. There are also actions the state should not take. Medicaid expansion could negatively impact the state’s labor participation rate. Some people work solely to have access to health insurance. Alabama has already expanded Medicaid coverage from 60 days to 12 months for new mothers. Further Medicaid expansion would mainly impact working-age citizens, taking away another incentive to work. All Alabamians benefit when the state has a robust workforce. Government must allow citizens unrestricted freedom and opportunity to work. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: Bold tax reform should be at the top of Alabama lawmakers’ agenda
“Alabama budgets are in great shape.” That was the message last week from the Alabama Legislative Services Agency’s deputy director Kirk Fulford to a joint meeting of the legislative budget committees in Montgomery. If you are in favor of growing Alabama’s state government to new heights, then I suppose that is true. But if you, who, like so many Alabamians, elected a Republican supermajority to serve in Montgomery on the promises of fiscal responsibility and limited government, the current state budget projections are far from great. Last year was “historic” for state government. The state ended 2021 with a $1.5 billion revenue surplus. It also passed the largest budgets ever. But that may be just the start. Despite ongoing inflationary pressures and arguments over whether or not the country is in the midst of a recession, the state is poised to carry a multi-billion dollar surplus into 2023. What will lawmakers do with their unprecedented revenue surplus? They can continue the status quo and grow government to new heights, or they can finally make the right kind of history and provide large-scale tax relief to the people of Alabama and its job creators. The choice should be simple. Fulford told legislators that “we are well above what we need” for the 2023 budgets. He said that the state’s revenue streams could experience negative growth next year and still be able to pay for the budgets passed last session. If the country does settle into a recession, the state has at least a billion dollars in reserves available to weather an economic downturn. Alabama’s government will almost certainly enter 2023 with more cash on hand than ever before. If tax relief is not on top of the legislature’s agenda during the 2023 session, then when will it ever be? Unfortunately, we are already hearing the often used refrains for why real tax relief may be hard to pursue. Fulford expressed his concerns over the “sugar high” the economy is still experiencing from the influx of federal dollars during the pandemic and inflation is increasing the costs of state agencies. I do not question the accuracy of those concerns, but they are not new. We have heard these same warnings over the past two years, yet the legislature still enacted three budgets that increased spending by 35% through 2022. The risks were not enough to stop the spending spree. You’re also likely to hear that Alabama already passed the largest tax cut in state history, $160 million, during the 2022 regular session. Some $85 million of that “cut” was from not taxing one-time COVID-19 relief payments made to individuals. Meanwhile, our neighbors in Georgia enacted up to $2 billion in tax cuts last session while also cutting spending. Florida is reducing the tax burden of citizens by $800 million. Mississippi cut income taxes by $500 million, eliminating the lowest bracket. There is no reason that Alabama cannot enact tax cuts of similar magnitudes. The next question you are likely to hear from lawmakers is if we cut taxes, how do we replace the lost revenue? When you have a multi-billion dollar surplus, you do not need to replace the revenue. You just need to stop expanding government. What taxes should be on the chopping block in 2023? It does not really matter so long as they are significant enough to balance Alabama’s budgets, meaning that revenues realign with actual spending and state government only takes enough money from citizens to maintain the current level of government. There should never be a large end-of-year surplus. There are numerous options available to achieve that goal. Eliminating the sales tax on groceries, long supported by the Alabama Policy Institute (API), would save Alabamians over $500 million annually. Reducing individual and corporate income taxes will help mitigate the impacts of a recession by providing the state’s workforce with an incentive to work and giving businesses the capital needed to continue to invest in Alabama and its people. Other pro-business proposals include eliminating the state’s business privilege tax and increasing the exemption for personal property. Rebates alone are not enough. They should be combined with other tax-reducing measures. And while hundreds of millions are a start, lawmakers should think much bolder. An extended sales tax holiday, which API has advocated for since 2020, would provide temporary inflation relief to Alabamians and encourage residents to shop at local businesses. Similarly, a gas tax holiday would provide additional relief from near-record prices. The exact road to tax relief is less important, so long as the legislature finally acknowledges that state revenues belong to the people, not the government. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: Why Medicaid expansion is a bad idea for Alabama
As the Legislature heads toward its 2023 regular legislative session, calls for Medicaid expansion are likely to increase. Alabama remains one of 12 states that has not expanded coverage under Obamacare. The question is, will state lawmakers continue to resist the pressure to expand Medicaid or go full speed ahead? For a state that has a Republican supermajority in the legislature, the answer should be a resounding “no” on fully expanding Medicaid. But given the rapid growth of Alabama’s state government over the past few years, the prospect of more federal dollars flowing into the state may be too much for limited government proponents to overcome. Under the provisions of Obamacare, states that expand Medicaid to adults with incomes at or below 138% of the federal poverty level receive a 90% federal matching rate. The American Rescue Plan Act (ARPA) of 2021 added an additional 5% match rate over two years for states that have not already expanded Medicaid coverage. According to The Public Affairs Research Council of Alabama (PARCA), Medicaid expansion would cost the state an average of $225 million per year through 2027. PARCA estimates that the additional federal funding, as well as new tax revenues, would allow the state government to realize net savings of more than $1 billion by 2027. Keep in mind that the state has already expanded coverage for new mothers from 60 days to 12 months. This would not affect them. Future expansion would make all adults who meet the income requirements eligible for Medicaid. On paper, it may look like a no-brainer. Expand coverage and bring an extra $1 billion into the state in the next five years. In reality though, it’s not that simple. It’s not that simple. First, there is the issue of costs and savings. If Alabama expands Medicaid, the state government will be putting nearly $250 million more per year into its program by 2027. While more money will be coming back to the state from Washington, most of it will be going into the Medicaid program. And $250 million will just be the start. These cost estimates are not dynamic. Because of rising healthcare costs and shifting demographics, Medicare is on pace to go insolvent by 2028. Medicaid will face similar cost and enrollment increases due to these factors. Federal matching rates could also change. Obamacare originally offered expansion states a 100% match rate. That was later reduced to 90%. The 5% additional match included in ARPA would go away two years after expansion. Without other healthcare reforms, Medicaid costs will continue to rise while federal matching rates could decrease, taking up a larger portion of the state budget each year. Where does that leave the Department of Corrections, Economic and Community Affairs, judicial system, and other agencies funded by the general fund? If there’s a shortfall, Alabamians will pay for it through higher taxes, despite the fact that the state government is already taking more from you than ever before. There is also this notion that federal money is somehow free money. It is not. It represents money that the government has already taxed from you, future taxes, and an ever-growing national debt. In 2008, the federal government spent $201 billion on the Medicaid program. Last year Medicaid spending grew to $521 billion, a 159% increase in 13 years. By 2032, the Congressional Budget Office (CBO) projects that Medicaid spending will hit almost $800 billion annually. CBO estimates the national debt will grow by $18 trillion over the same period. So, while Alabama’s government may see a “profit” from expanding Medicaid, you, your children, your grandchildren, and future generations will be giving more money to the federal government to pay for it. The issue of federalism is also at the heart of the Medicaid expansion debate. More money from the federal government means more strings attached. Alabama will have less say over how it runs its Medicaid program. This has already happened in other expansion states. Under the Trump Administration, the Centers for Medicare and Medicaid Services (CMS) generally approved waivers allowing states to put work requirements in place for able-bodied adults. At least six expansion states had work requirement waivers approved under Donald Trump, which were then withdrawn by CMS under the directives of the Biden Administration. Alabama filed such a waiver for its existing Medicaid program, which would have required most parents to work at least 35 hours per week to maintain eligibility. CMS never approved the waiver, and Alabama withdrew the application after Joe Biden became President. Estimates show that 200,000 to 340,000 people could become eligible for Medicaid if Alabama expands the program. The state would be able to set few requirements for benefit recipients, meaning they would have less incentive to contribute to the state’s workforce. Why would the state government want to create another disincentive to work when businesses are already struggling to fill positions? Before Alabama lawmakers bow to the pressures to expand Medicaid, they must carefully consider the long-term impacts on the state budget. More importantly than Alabama’s bottom line, they must consider how it will impact the people they represent. When the federal government offers something that sounds too good to be true, it probably is. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: The truth behind inflation and the impending recession
Last week, the U.S. Bureau of Economic Analysis announced that the country’s economic growth rate had dropped by 0.9 percent, falling for the second straight quarter. While the White House and others claim that the country is not experiencing a recession, historically, a recession has been defined as two consecutive quarters of declining real GDP growth. The current economic downturn is being driven by 9.1 percent inflation, a 40-year high. The question now facing the nation, as well as Alabama’s state government, is how did America get into this situation and how to fix it? There are two basic answers: monetary policy and fiscal policy. They work in tandem. Both created the problem, and both are needed to correct it. The International Monetary Fund defines inflation as the rate of increase in prices over a given period. To put it simply, the current period of near record high inflation was caused by too many dollars chasing too few goods. Fiscal and monetary policy both played a role in increasing inflation rates and pushing the country towards a recession. In 2017 Congress passed the Tax Cuts and Job Act, which, according to the Congressional Budget Office (CBO), reduced federal taxes by $1.3 trillion over ten years. This meant that individuals and businesses had more purchasing power at their disposal. To be clear, the 2017 tax cuts did not cause the nation’s current economic problems. However, combined with lax monetary policy, the tax cuts did add fuel to the fire. Around the same time they went into effect, the Federal Reserve began a series of interest rate reductions, which remained near 0 percent until March 2022. Because borrowing money was so inexpensive, even more cash flowed into the economy. On the fiscal policy front, the federal government, as well as Alabama’s state government, share blame. Both are on an unsustainable fiscal path, marked by unprecedented expansions of government spending. According to data from CBO, federal spending grew by 53.5 percent from 2019-2021, fueled by pandemic stimulus. Total federal spending was almost $7 trillion in 2021, and the deficit reached $2.8 trillion. The total federal debt held by the public was “only” $9 trillion a decade ago. Alabama’s state government has been just as guilty as Washington. Since 2019 state spending has grown by over 35 percent, not including $4 billion in federal stimulus funding. Alabama’s government spending is set to reach almost $12 billion this year. Taxes increased by over 41 percent in the last five years. Unlike the federal government, Alabama cannot run a deficit or simply print more money when it runs out, meaning that state lawmakers have chosen to take more from you to grow government. That spending has fueled inflation by increasing the supply of money to the state economy. Tax increases restrain business and personal investment. Federal and state governments doubled down on spending during the pandemic, increasing demand by sending more cash into the economy while at the same time mandating business shutdowns that limited supply. How does government slow the flow of money into the economy without dragging the U.S. into a prolonged recession? From the federal government’s standpoint, it needs to use both monetary and fiscal policy to tame inflation and lessen the impacts of a recession. One or the other is not enough. Easing inflation is relatively simple. The Federal Reserve has already taken steps to do so. Since January, interest rates have increased from 0.25 percent to 2.5 percent. If rates had been higher all along, the impacts of inflation would have been less severe. While raising interest rates will certainly lower inflation, that alone will not shorten a recession. That will only happen if done in combination with pro-growth tax and spending policies. Unfortunately, it looks like the federal government is poised to make another fiscal misstep. Last week U.S. Senate Majority Leader Chuck Schumer (D-NY) announced that an agreement on a partisan tax and spending bill had been reached. Reports indicate that the legislation would increase taxes by $327 billion. The combination of more taxes and higher Federal Reserve borrowing rates will reduce the amount of money going into the economy and curb inflation, but it will not lessen the impacts of a recession. Instead of increasing taxes, the federal government should adopt fiscal and regulatory policies that enable businesses to increase the supply of goods and services, incentivize people to work, and encourage investment. The Federal Reserve should rebalance its asset sheet by selling Treasury securities purchased over the last two years. It should not continue to allow the federal government to print more money. Congress and the President should work to reduce federal spending and bring it in line with actual revenues. While Alabama has no control over monetary policy, there are fiscal policy steps that our government can take to slow the flow of money into the economy while incentivizing business to increase the production of goods and services. It’s simple. Take less money from citizens and stop the record expansion of state government. There are a number of ways to provide tax relief, whether it be through corporate and/or individual income tax rate reductions (which many states have already done), eliminating the state’s archaic sales tax on groceries, or providing an extended gas or sales tax holiday to Alabamians. Reducing taxes will provide businesses incentives to expand production and grow Alabama’s economy in the long run. Alabama has increased spending at a faster pace than California or New York over the past three years. Supply could not keep up. We don’t need more government to stop the impacts of inflation that it created and repair the economy. We must demand less. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: Alabama Department of Labor overpaid unemployment recipients by more than $164 million in 2020-21
According to recent data from the U.S. Department of Labor, Alabama overpaid unemployment compensation benefit recipients by more than $164 million in 2020 and 2021. Now the Alabama Department of Labor wants some of that money back, sending bills, sometimes as high as $20,000, to citizens. Governor Kay Ivey disagrees, implying that the state should absorb the loss and move on. Regardless of what you think should be done in this case, shouldn’t we expect better stewardship of our taxpayer dollars? Alabama’s government grew by more than 35% from 2019 to 2022. As spending soars, so does government waste. The overpayments made by the Alabama Department of Labor are just one example of the problems that come with the expansion of government. You may be thinking that the overpayments were made after the onslaught of claims filed in the wake of the COVID-19 pandemic. And that’s true. Between May 2019 and May 2020, the state saw a 580% increase in unemployment claims. But the truth is, the Alabama Department of Labor was not doing much better before COVID. From 2018 to 2021, the state made an estimated $159.3 million (17.2% improper payment rate) in improper unemployment benefit payments, ranking in the bottom third among states. The reasons for the mistakes leading to overpayment vary. It could be something as innocent as an honest mistake by an applicant or their employer. It could be an error made by staff during claim review. In some cases, the reason is blatant fraud. Regardless of the reasons, though, the fact remains that the state is paying tens of millions of dollars per year to beneficiaries who should not receive unemployment. When the state’s unemployment compensation fund is depleted, businesses pay higher tax rates to fill the gap. The employer share of the unemployment tax nearly doubled from 2020 to 2021. Moreover, since 2020 the state has spent $464.5 million in federal stimulus funds, taxpayer dollars to replenish the fund. What happens now? So what happens now? According to Alabama Secretary of Labor Fitzgerald Washington, the Department is open to expanding the use of federal waivers to resolve some of the claims and will work with claimants on payment plans if their overpayments are not waived. The Governor’s Office said that “If a mistake is made by the government, people should not have to pay the price for something that was no fault of their own.” I tend to agree with the Governor. The state approved what turned out to be improper unemployment claims. Months later, errors were discovered, and now citizens are being held in limbo while our government determines if they will have to pay back the money. Apart from fraud, it isn’t their fault. However, the notion that $164 million of your money is insignificant is beyond troubling. Just three months ago, the Legislature passed the “largest tax cut in state history,” which will reduce the tax liability of Alabamians by about $160 million over the next few years. Senate General Fund Budget Committee Chairman Greg Albritton (R-Atmore) said at the time, “The primary headliner from this session, I think, is the amount of tax cuts we’ve done.” Our state lawmakers and appointed officials can’t have it both ways. $160 million can’t be considered “historic” one day, and then virtually the same amount be written off as an accounting error the next. This attitude all but confirms what I already suspected. The “record” tax cuts were merely a token gesture aimed at giving lawmakers something positive they could talk about on the 2022 campaign trail. They will have no meaningful impact for most citizens. We should all be outraged. In 2022 alone, at least ten states reduced individual and corporate income tax rates. Last year over a dozen states did the same. Our neighbors in Georgia and Mississippi will reduce income taxes by $1 billion and $500 million, respectively, over the next few years. Illinois recently passed legislation to suspend its grocery tax for the next year. Tennessee will suspend its grocery tax for the entire month of August. Virginia and Kansas enacted legislation to phase out their grocery taxes entirely. Meanwhile, our state government seems content to stay the course. There are no plans for a special session this fall to address tax relief. Nothing to address how inflation and rising gas prices are hurting Alabamians. The best we can hope for is that by the time the regular session begins next March, there is enough pressure from citizens that lawmakers have little choice but to act. By then, we will likely hear the usual refrain that inflation is hurting the budget. We can’t take revenues away from education. The economy is uncertain. But if that were the case, writing off $164 million in unemployment overpayments wouldn’t be insignificant. Clearly, our government has taken enough of your money to pay for that and enact tax relief for all Alabamians. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
