If I have a W2 with only $0.08 do I have to report it?

California Statutory Wills Are Free

Questions and answers about California’s Statutory Will are presented here and in California Probate Code Section 6240.

The following information, in question and answer form, is not a part of the California Statutory Will. It is designed to help you understand about Wills and to decide if this Will meets your needs. This Will is in a simple form.

1. Does a Will avoid probate? No. With or without a Will, assets in your name alone usually go through the court probate process. The court’s first job is to determine if your Will is valid.

2. Are there different kinds of Wills? Yes. There are handwritten Wills, typewritten Wills, attorney-prepared Wills, and statutory Wills. All are valid if done precisely as the law requires. You should see a lawyer if you do not want to use this Statutory Will or if you do not understand this form.

3. What can a Will do for me? In a Will you may designate who will receive your assets at your death. You may designate someone (called an “executor”) to appear before the court, collect your assets, pay your debts and taxes, and distribute your assets as you specify. You may nominate someone (called a “guardian”) to raise your children who are under age 18. You may designate someone (called a “custodian”) to manage assets for your children until they reach any age from 18 to 25.

4. Does my Will give away all of my assets? Do all assets go through probate? No. Money in a joint tenancy bank account automatically belongs to the other named owner without probate. If your spouse, domestic partner, or child is on the deed to your house as a joint tenant, the house automatically passes to him or her. Life insurance and retirement plan benefits may pass directly to the named beneficiary. A Will does not necessarily control how these types of “nonprobate” assets pass at your death.

5. What happens if I die without a Will? If you die without a Will, what you own (your “assets”) in your name alone will be divided among your spouse, domestic partner, children, or other relatives according to state law. The court will appoint a relative to collect and distribute your assets.

6. May I change my Will? Yes. A Will is not effective until you die. You may make and sign a new Will. You may change your Will at any time, but only by an amendment (called a codicil). You can give away or sell your assets before your death. Your Will only acts on what you own at death.

7. When should I change my Will? You should make and sign a new Will if you marry, divorce, or terminate your domestic partnership after you sign this Will. Divorce, annulment, or termination of a domestic partnership automatically cancels all property stated to pass to a former husband, wife, or domestic partner under this Will, and revokes the designation of a former spouse or domestic partner as executor, custodian, or guardian. You should sign a new Will when you have more children, or if your spouse or a child dies, or a domestic partner dies or marries. You may want to change your Will if there is a large change in the value of your assets. You may also want to change your Will if you enter a domestic partnership or your domestic partnership has been terminated after you sign this Will.

8. May I add or cross out any words on this Will? No. If you do, the Will may be invalid or the court may ignore the crossed out or added words. You may only fill in the blanks. You may amend this Will by a separate document (called a codicil). Talk to a lawyer if you want to do something with your assets which is not allowed in this form.

9. Who may use this Will? This Will is based on California law. It is designed only for California residents. You may use this form if you are single, married, a member of a domestic partnership, or divorced. You must be age 18 or older and of sound mind.

10. Are there any reasons why I should NOT use this Statutory Will? Yes. This is a simple Will. It is not designed to reduce death taxes or other taxes. Talk to a lawyer to do tax planning, especially if (i) your assets will be worth more than $600,000 or the current amount excluded from estate tax under federal law at your death, (ii) you own business-related assets, (iii) you want to create a trust fund for your children’s education or other purposes, (iv) you own assets in some other state, (v) you want to disinherit your spouse, domestic partner, or descendants, or (vi) you have valuable interests in pension or profit-sharing plans. You should talk to a lawyer who knows about estate planning if this Will does not meet your needs. This Will treats most adopted children like natural children. You should talk to a lawyer if you have stepchildren or foster children whom you have not adopted.

11. What can I do if I do not understand something in this Will? If there is anything in this Will you do not understand, ask a lawyer to explain it to you.

12. Where should I keep my Will? After you and the witnesses sign the Will, keep your Will in your safe deposit box or other safe place. You should tell trusted family members where your Will is kept.

13. What is an executor? An “executor” is the person you name to collect your assets, pay your debts and taxes, and distribute your assets as the court directs. It may be a person or it may be a qualified bank or trust company.

14. What is a custodian? Do I need to designate one? A “custodian” is a person you may designate to manage assets for someone (including a child) who is under the age of 25 and who receives assets under your Will. The custodian manages the assets and pays as much as the custodian determines is proper for health, support, maintenance, and education. The custodian delivers what is left to the person when the person reaches the age you choose (from 18 to 25). No bond is required of a custodian.

15. What is a guardian? Do I need to designate one? If you have children under age 18, you should designate a guardian of their “persons” to raise them.

16. Should I ask people if they are willing to serve before I designate them as executor, guardian, or custodian? Probably yes. Some people and banks and trust companies may not consent to serve or may not be qualified to act.

17. Should I require a bond? You may require that an executor post a “bond.” A bond is a form of insurance to replace assets that may be mismanaged or stolen by the executor. The cost of the bond is paid from the estate’s assets.

18. What happens if I make a gift in this Will to someone and that person dies before I do? A person must survive you by 120 hours to take a gift under this Will. If that person does not, then the gift fails and goes with the rest of your assets. If the person who does not survive you is a relative of yours or your spouse, then certain assets may go to the relative’s descendants.

19. What is a trust? There are many kinds of trusts, including trusts created by Wills (called “testamentary trusts”) and trusts created during your lifetime (called “revocable living trusts”). Both kinds of trusts are long-term arrangements in which a manager (called a “trustee”) invests and manages assets for someone (called a “beneficiary”) on the terms you specify. Trusts are too complicated to be used in this Statutory Will. You should see a lawyer if you want to create a trust.

20. What is a domestic partner? You have a domestic partner if you have met certain legal requirements and filed a form entitled “Declaration of Domestic Partnership” with the Secretary of State. Notwithstanding Section 299.6 of the Family Code, if you have not filed a Declaration of Domestic Partnership with the Secretary of State, you do not meet the required definition and should not use the section of the Statutory Will form that refers to domestic partners even if you have registered your domestic partnership with another governmental entity. If you are unsure if you have a domestic partner or if your domestic partnership meets the required definition, please contact the Secretary of State’s office.

21. What is community property? Can I give away my share in my Will? If you are married and you or your spouse earned money during your marriage from work and wages, that money (and the assets bought with it) is community property. Your Will can only give away your one-half of community property. Your Will cannot give away your spouse’s one-half of community property.

Link to the original site

California Passes Mandatory Electronic Payment Law

New Section 19011.5 of the California Revenue & Taxation Code requires some taxpayers to make their tax payments using an electronic method which California calls “mandatory e-pay”.
There is a one percent penalty of the amount paid unless the failure to pay electronically was for reasonable cause and not willful neglect.

As a California tax attorney, I don’t know and the law remains unclear whether the penalty applies to those who are employees and who make regular tax payments by having employee withholding done by their employer.

In California, beginning January 1, 2009, personal income taxpayers whose tax liability is greater than $80,000 or who make an estimated tax or extension payment that exceeds $20,000 for taxable years beginning on or after January 1, 2009, must send the payment electronically. Once either of these conditions is met, all payments regardless of type, amount, or tax year must be remitted electronically by credit card, Electronic Funds Withdrawal (EFW), or web pay.

Taxpayers whose tax thresholds fall below the mandatory e-pay amounts may request to discontinue making electronic payments. In March 2009, the California Franchise Tax Board will provide a waiver form for taxpayers to file.

On December 1, the California Franchise Tax Board sent courtesy letters to taxpayers who made a payment in 2008 that could qualify them for mandatory e-pay. The letter informed these taxpayers of the law change, and that they may meet the mandatory e-pay threshold in 2009.

Link to the original site

Tax Law Changes Allow Employees to Contribute More to Tax-Deferred Accounts

Since 2001, the dollar limit on employee contributions to employer-sponsored tax-deferred retirement accounts has increased from 32 percent of average earnings ($10,500) in 2001 to 39 percent of earnings in 2006 ($15,000). Employees over age 50 may make additional “catch-up” contributions, which will raise the total dollar limit for them to 52 percent of average earnings in 2006. But very few employees contribute the maximum allowable amount. Of those participating in plans, only 6 percent contributed the maximum amount in 2003. Additional increases in the contribution limit are likely to reduce the share of those who contribute the maximum.

Link to the original site

N.J. – 13 of 20 Most Taxed Counties in Nation

New Jersey has 13 of the 20 most taxed counties in the Nation according to a new study by the Tax Foundation for owner-occupied homes located in counties that have populations of over 20,000. According to the study, the ranking of the counties with the highest property tax burden is as follows:

Westchester County, New York ($7,908)
Nassau County, New York ($7,726)
Hunterdon County, New Jersey ($7,708)
Bergen County, New Jersey ($7,370)
Somerset County, New Jersey ($7,201)
Essex County, New Jersey ($7, 149)
Rockland County, New York ($7,066)
Morris County, New Jersey ($6,977)
Union County, New Jersey ($6,727)
Passaic County, New Jersey ($6,673)
Putnam County, New York ($6,553)
Suffolk County, New York ($6,502)
Monmouth County, New Jersey ($6,360)
Hudson County, New Jersey ($5,865)
Lake County, Illinois ($5,790)
Fairfield County, Connecticut ($5,694)
Sussex County, New Jersey ($5,677)
Middlesex County, New Jersey ($5,575)
Mercer County, New Jersey ($5,457)
Warren County, New Jersey ($5,228)

Source: The Tax Foundation

Link to the original site

$568,000 Tax Bill on Vacant Land

Link to the original site

$2.5 Million Property Tax Refund

Link to the original site

Property Tax Relief as one Tool for Beginning to Fix the Foreclosure Crisis

With any issue as visible and complex as the recent mortgage foreclosure crisis, you can expect a vast array of proposals for addressing the problem to arise. Unfortunately, at least at the federal level, many of those proposals have left much to be desired.

One of the more bizarre ideas to come out of Congress is an expansion of the “net operating loss carryback” provision. This proposal would allow companies taking a loss in either of the next two years to deduct that loss against taxes already paid at any time during the last four years (currently the deduction is limited to the previous two years). This is an inefficient and poorly targeted approach to the foreclosure problem because the deduction would be available to all companies – not just homebuilders and other housing-related businesses. It is also a troubling proposal because the breaks it provides have no strings attached to them. If there isn’t a demand for new homes, there isn’t going to be a demand for homebuilders regardless of whether or not the company gets a check from the federal government.

Another idea Congress proposed is a no-interest loan in the form of a refundable tax credit for first-time homebuyers that must be paid back over 15 years. Unfortunately, the credit will not be available to the buyer until after the downpayment has already been made, so its usefulness is seriously constrained.

Other tax changes are discussed in the link above, but overall it seems clear that Congress has missed the mark. Their collection of proposals raises one interesting question in particular: why are so many of the approaches to this crisis centered around tax cuts when nobody is arguing that the problem is a result of high taxes? As Bob McIntyre, director of Citizens for Tax Justice, recently said, “If we gave this issue to the agriculture committees, they’d probably give us farm subsidies, so if we give this problem to the tax-writing committees they give us tax breaks because that’s what they do. I’m pretty sure we have committees in Congress to deal with housing.” It’s always good for politicians to be able to offer up tax cuts, though.

But while for the most part Congress’ proposals are nothing more than the result of an over-eagerness to cut taxes, another one of their proposals actually did touch on one potential solution involving taxes. Property taxes are not the cause of the foreclosure crisis, but lowering property taxes on those homes most at risk for foreclosure seems like a sensible component of any broad strategy for reducing the number of foreclosures. Unfortunately, but perhaps unsurprisingly, even Congress’ efforts at providing property tax relief aren’t tremendously helpful – an income tax cut of no more than $350 per spouse (or roughly $150 under the Senate bill) for all homeowners who do not itemize is all they could muster. Additionally, since the cut comes in the form of a deduction, it’s value increases for better-off homeowners in higher tax brackets who are presumably at less risk of foreclosure.

In contrast to this meager amount of relief proposed in Congress, a bill introduced in Michigan (where the foreclosure crisis has been particularly devastating) takes works the property tax angle more aggressively (and arguably more productively) by offering a full exemption from the property tax for homeowners earning less than 200% of the federal poverty level. Homeowners earning up an income limit to be determined by the taxing district are eligible for a 50% reduction of their property tax bill. Taxpayers possessing assets worth more than an amount to be determined by each locality will be excluded from the relief, as will taxpayers whose homes are worth more than 300% of the median home price in their district.

By providing extensive relief to those least fortunate homeowners most vulnerable to foreclosure, rather than only offering more minor relief to a broad swath of taxpayers, the Michigan legislature has before it a bill much more likely of meaningfully impacting the foreclosure crisis. And by introducing a degree of progressivity into the property tax, this bill could make life just a bit easier for those individuals most likely to be impacted not only by the foreclosure crisis, but also by the recent economic slowdown in general.

Notably, this emergency bill is in addition to the state’s property tax circuit-breaker that provides tax credits to lower- and middle-income families based on the share of their income they are required to pay in property taxes. The emergency relief, then, isn’t something that even needs to be made permanent. A circuit-breaker is the preferred method for assisting those in need of relief in a normal housing market – but under the current, very abnormal housing market, this additional relief could play an important role in a broader plan designed to address the needs of Michigan homeowners.

As an interesting aside, one of the other primary benefits of this bill would be a standardization of the process for providing need-based property tax relief. Detroit has recently been plagued with reports that their “Hardship Committee”, appointed to decide who is in need of property tax relief, has been awarding tax benefits to wealthy, well-connected homeowners. The state bill would offer local committees less discretion in deciding who can see a tax reduction. This investigation into Detroit’s “Hardship Committee” by The Detroit News provides a very interesting read that discusses a stunning example of tax fairness being thrown out the window.

Link to the original site

Connecticut Gas Taxes: Playing Politics with a Serious Crisis

The Connecticut House and Senate each approved a bill early Thursday morning that adds to the state’s existing $150 million deficit by cancelling a scheduled increase in the state’s tax on wholesale earnings from gasoline sales. Governor Rell is expected to sign the measure. The bill prevents what would have been a 0.5% increase in the petroleum wholesale earnings tax, which industry lobbyists are claiming would have increased prices at the pump by about 5 cents.

The estimated cost of this bill has been pegged at $25 million. It may at first seem odd that Connecticut lawmakers have decided to make cutting taxes a top priority when the state is facing a budget deficit and numerous counties have been forced to scale back vital public services whose benefits almost certainly outweigh their costs. Even in the face of these serious budgetary issues, one of the first reactions from Democratic House Speaker James A. Amann was that “We didn’t raise taxes, so we’re pretty proud of what we’ve done.”

What’s going on here? Why is restricting revenues such a priority when it couldn’t be more obvious that state and local governments need more funds to provide the services Connecticut families have come to expect?

The answer: It’s an election year! Republican legislators, outnumbered 44 to 107 in the House and 13 to 23 in the Senate, have opted for a strategy of supporting viscerally appealing, though often fiscally irresponsible plans designed to gain some positive publicity and win votes in November. The majority of those plans have been ignored by the Democrats in power (for the most part with good reason), though with gas prices as high as they are, the Democrats decided not to take the political risk associated with appearing uninterested in the effects of high fuel costs on Connecticut families.

This isn’t at all surprising. Many state lawmakers across the nation have latched on to the headlines being generated by high fuel prices by proposing gas tax reductions much better suited for winning votes than for actually helping anybody in need. This plan in Connecticut is no different.

Even if we put aside our skepticism of the petroleum industry’s figures and accept their estimate that this bill will prevent a 5 cent increase in the price of gas, few observers could seriously suggest that avoiding this increase will do anything to improve the financial situation of Connecticut families. During the brief debate that occurred earlier this year over a proposed suspension of the 18.4 cent federal gas tax, that plan was heavily criticized for only providing the average driver with a $30 tax cut. The Connecticut bill would save drivers less than a third of that amount, though it would play a noticeable role in driving the state government millions deeper into debt.

Well aware that this bill would only provide a negligible tax cut for the average family, one legislator insisted, in typical election-year fashion, that it is important to “let our citizens know that we are very concerned about what they’re up against”.

That’s what makes this whole debate so discouraging. The problem is not just that Connecticut lawmakers are shamelessly hunting for votes – it’s that in the face of a serious crisis for lower-income families, lawmakers have decided that “letting our citizens know we’re concerned” is more important than actually doing something meaningful to help them.

Even if Connecticut legislators wished to avoid a needed restructuring of their state’s regressive tax system, this does not change the fact that much better options exist for providing real assistance to families hurt by high fuel costs. Instead of offering across-the-board tax relief that benefits both Connecticut’s wealthiest, as well as its poorest families, a targeted low-income gas tax credit of the type enacted in Minnesota could have distributed more gas tax relief to lower-income families at a similar cost. Alternatively, Connecticut could have given consideration to enacting a modest Earned Income Tax Credit (EITC) or a meaningful low-income, refundable property tax circuit-breaker. Admittedly, an EITC or circuit-breaker would cost more than a gas tax cut or gas tax credit, but if legislators are genuinely “concerned”, wouldn’t it be worth it to find the money somehow? Until legislators readjust their priorities from winning votes to improving the lives of those struggling to make ends meet, Americans shouldn’t expect any relief beyond the kind of poorly targeted and gimmicky tax cut passed in Connecticut.

Link to the original site

Alabama case contests discriminatory property tax restrictions

In a court case filed earlier this year in Alabama, lawyers for several rural schoolchildren and their parents hope to demonstrate that Alabama’s regressive tax code unconstitutionally disadvantages children in poor, rural counties by limiting the ability of localities to raise a reasonable amount of revenue with which to fund education. The plaintiffs’ approach in this case involves a thorough accounting of the history of Alabama’s property tax, with the intent of demonstrating that these policies were purposely enacted to destroy the ability of counties to pay for African Americans’ educations with money raised from wealthier white landholders. If this approach proves itself effective, the requested remedy is a mandate requiring the governor and legislature to work together to rewrite Alabama’s property tax law in such a way as to make it non-discriminatory.

Though there may be reason to question the use of the courts in securing tax policy reform, what is interesting about this case is the way it demonstrates the unsavory original intent behind many of Alabama’s property tax limitations. The district court hearing the case conceded as much in an earlier case when it stated that “constitutional provisions governing the taxation of property [in Alabama] are traceable to, rooted in, and have their antecedents in an original segregative, discriminatory policy”.

According to the plaintiffs’ official complaint, following Reconstruction, Alabama’s white elites exploited widespread racial resentments in order to gain enactment of their favored regressive tax policies. In the post Civil War period, the tax base, which had been focused on the slave trade, was redirected onto land. But when blacks were enfranchised, wealthy whites who owned significant tracts of land in the “Black Belt” feared that if blacks were granted local autonomy, they would vote to raise property taxes (which would hit hardest those well-off enough to afford significant amounts of property) in order to support their own education. Though the idea of funding public services for the poor with money drawn from more fortunate members of society is hardly controversial today, at the time the prospect of privileged whites having to pay for the education of “inferior” African Americans was extremely unsettling. Limiting the amount of tax that could be levied on property thus became a top priority.

One of the earliest manifestations of this sentiment can be founded in the 1875 Redeemer Constitution. Caps on the rate of property taxation were implemented, largely in order to protect wealthier whites from tax increases in predominately black localities. At the time, and for some years after, manipulative assessment schemes served a similar end.

Later, in 1891, the Apportionment Act explicitly allowed for funds to be transferred from black to white schools. This removed any impetus for whites to increase property taxes to fund their own schools, and made property tax caps even more useful.

Subsequent to these policies came the adoption of the 1901 Alabama State Constitution, still in effect today, which the plaintiffs claim was created with the explicit goal of “disenfranchising blacks and maintaining white supremacy” in the state. That claim seems relatively uncontroversial, as the Constitution established a poll tax, as well as literacy and landowning requirements for voting that kept African Americans effectively disenfranchised and segregated from the rest of society until the 1960s. With blacks disenfranchised, the constitution also established a referendum requirement for all local property tax changes.

In addition to the disenfranchisement of blacks was a solidifying of state-level control of local tax issues. The plaintiffs describe state intervention into local property tax policy as an important “fall-back provision for guaranteeing the maintenance of white supremacy in black majority counties”. Unlike some county governments, the state was certain to maintain a white majority of legislators.

Although discriminatory voter laws, segregation, and inconsistent property assessments were eventually struck down in court in the 60s and 70s, the crippling effects of other Alabama tax laws contained in the state constitution continue to this day. In response to a federal district court ruling that struck down the irrational assessment system that had been used in Alabama for decades, the Alabama legislature passed a “Lid Bill” amendment that was ratified by voters in 1972. The amendment (Amendment 325) established fair market value assessment ratios for all kinds of property (30% for utilities, 25% for other business property, and 15% to residential, farm, and forest lands) and imposed an absolute lid on all ad valorem taxes of 1.5% of fair market value. To see why “split roll” property taxes of this type are a poorly targeted way to shift the tax burden from residents to businesses, see this policy brief from the Institute on Taxation and Economic Policy (ITEP).

A second Lid Bill in 1978 lowered the property assessment ratio to 10% for residential, agricultural, and forest land and measured value not as “fair market value” but rather on the land’s “current use.” Requiring land to be taxed on the value of its current use results in a huge tax break for wealthy landowners and speculators. As the court brief explains, “Seventy percent of Alabama’s land mass is forest land, but due to the 10% assessment ratio and current use provisions of the 1971 and 1978 Lid Bill Amendments, forest land contributes only 2% of all property tax revenue.”

To add yet another layer of unfairness, the Lid Laws revoke local autonomy by requiring a lengthy three stage process if a locality wishes to raise property taxes. First, the locality’s commission or council must vote to request that the legislature pass a local constitutional amendment that would raise the locality’s property taxes. Then the state legislature must approve the constitutional amendment, with at least 60 percent of both chambers voting in favor. Finally, a majority of the locality’s voters must approve the amendment in a referendum. As the icing on the cake, if any member of the Legislature objects to the amendment, then it is sent to a statewide vote (and thus, most people voting on it will not even be subject to the locality’s property taxes). These extremely cumbersome requirements not only undermine local control but also impede the state legislature from promptly dealing with more important state business.

Unlike the debates that had taken place in the late 1800s and early 1900s, the discussion of whether to enact the 1970s Lid Laws was much less openly racist. But with George Wallace, a famous segregationist, in the office of the governor, race was certainly a visible issue. Given the history of Alabama tax policy, it’s not at all surprising that the plaintiffs conclude that,

There is an historical pattern of the racial motives behind the property tax provisions in the Alabama Constitution: There is a direct line of continuity between the property tax provisions of the 1875 Constitution, the 1901 Constitution, and the amendments up to 1978.

But aside from the existence of racial biases in the intent of Alabama tax law, what is more useful to point out is the existence of anti-poor (and as a corollary, anti-black) biases in the effect of the law.

The confluence of anti-tax provisions in effect in Alabama makes obtaining sufficient revenues from property taxes nearly impossible. Alabama property taxes are the lowest in the nation as a share of personal income. According to the court brief, in 2003, Alabama spent $5,908 per K-12 student, compared with a national average of $7,376 per student, making it the fourth lowest ranked state. The correlation between property taxes and school spending is no coincidence and it has serious negative consequences for Alabama schools, and in turn for the state’s long-term economic growth. Many school buildings are old and crumbling, and some are so overcrowded they have been forced to use trailers for overflow classrooms. Alabama is among the bottom ten states in writing scores with 76% of 8th graders writing below grade-level.

But a look only at property taxes and school funding does not provide a view of the full picture. Simply put: low property taxes are not the same thing as low taxes overall. Due largely to unusually high sales taxes and an almost-flat income tax, lower- and middle-income Alabamians actually end up paying a very significant amount of their income in state and local taxes. According to ITEP data, the poorest 20% of Alabama residents (earning less than $16,000 a year) pay about 11.2% of their income in state and local taxes under 2008 tax law. That’s well over two times the percentage paid by the richest 1 percent, or those with average incomes of more than $999,400.

A large contributor to this outcome is the entrenched preference for sales taxes in Alabama’s tax code. Sales taxes are exempted from the referenda requirements in place for raising property taxes, so many localities rely on these to fund schools. Sales taxes run as high as 11% in some parts of Alabama and according to ITEP estimates, the bottom 80% of taxpayers pay over five times as much in sales taxes as they do in property taxes. Sales taxes are also notoriously vulnerable to economic slowdowns. Making matters worse for Alabama’s sales tax is that it is littered with numerous needless exemptions for various goods and services (each of which contribute to the need for such high sales tax rates in the state) while groceries continue to be subject to the tax. Grocery taxes hit the poor the hardest since such a large portion of a poorer family’s income goes to paying for groceries. Alabama is one of only two states where sales tax is fully applied to groceries.

Alabama also has a seriously flawed income tax code. Up through 2005, Alabama required a family of 4 to start paying income taxes on $4,600 of income. This threshold was raised to $12,600 in 2006, but it’s still the fourth lowest in the nation (and a family of four is considered poor if they made less than $19,961 in 2005). Its higher tax brackets kick in at such low income levels (Almost 70% of Alabama taxpayers paid at the top rate in 2006) that the wealthiest 20% of Alabamians actually manage to pay out less of their income in income taxes than the middle 20%. This is in large part because Alabama is one of only seven states that allow a full deduction from state income taxes of federal income taxes paid. Since the wealthy pay much more federal income taxes than the poor and middle class, this sharply reduces the effective tax burden of the state income tax on the wealthy.

How can this be changed? Much of the problem lies with Alabama’s constitution, which has kept Alabama’s tax code among the most regressive in the nation. (Incidentally, the 1901 constitution was only ratified by rigging the vote in Alabama’s Black Belt – the referendum actually lost outside the Black Belt where there was no vote rigging). Entrenching tax policy in the state constitution is never a good idea as it makes it far too difficult to adjust the law to confront new challenges. A movement away from this process would be a great first step.

The legacy of tax unfairness is inexorably linked to the legacy of racial injustice in Alabama. The intentional racial bias in Alabama’s tax system may be less visible today, but effects on low-income Alabamians are still very plain. Aside from all the legal and historical arguments raised by this court case, one thing is clear: the solution proposed by the plaintiffs – that the Governor and legislature work to enact serious reforms to Alabama’s tax system – is absolutely necessary. Alabama property taxes are the lowest in the country and K-12 and higher education have both noticeably suffered as a result. High sales taxes and an essentially flat income tax exacerbate this imbalance. It’s time for Alabama to break away from its humiliating past and enact a tax system designed with 21st century considerations in mind.

Link to the original site

« Previous Page — Next Page »