Government Bytes

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A view on Riley's 'revenge tax'

by Andrew Moylan / /

As the familiar song goes, Alabama has long been "sweet home" for its millions of residents. Too bad Gov. Bob Riley is sounding a sour note to the large businesses that create jobs and invest in his state by seeking a punitive tax hike of roughly $200 million over the next six years on energy companies.

His move amounts to little more than budgetary blackmail, and Americans in other states should beware of cash grabs like these which ultimately will reach into their wallets.

The governor's support of the tax hike is linked to a recent state-court ruling that energy companies operating off the state's shores were entitled to $63 million in refunds of overpaid taxes. The problem, however, was that the Legislature had already accounted for that money to fill out next year's budget.

Despite having signed budgets early in his career that boosted per-capita spending by double digits and subsequently allowing outlays to grow at a healthy rate, Riley seems to have little interest in significantly paring back expenditures now. So he's teamed up with all-too-eager lawmakers to hike taxes by the amount of the energy companies' refund (and more in the future), in effect punishing them for winning their lawsuit. Indeed, some supporters of the scheme have hinted at scuttling the bill if only "Big Oil" would forego its legally won refunds.

As a cover for their strong-arm tactics, Riley & Co. have borrowed the economically illiterate rhetoric of the left. In comments to the Associated Press, Riley accused his opponents of "lining the pockets of big oil companies" instead of focusing on Alabama's public services. But what Riley seems to ignore is that the money in question doesn't "belong" to the government any more than an individual's income tax refund does.

Furthermore, though politicians portray tax hikes aimed at prosperous multi-national companies as painless, basic economics tells us that all taxes are ultimately borne by regular folks. Higher taxes mean less investment and fewer jobs generated by offshore energy production. Alabamians would pay higher prices at the pump and in stores as energy companies' profits dwindled. Another Southern governor, Jimmy Carter, learned this lesson as president when he imposed a federal "windfall profit tax" on oil. The result was depressed domestic production and increased reliance on expensive imports.

Any attempt to target a tax hike, even toward politically convenient oil companies, will ultimately mean a one-two punch to middle-class pocketbooks already softened up by a slowing economy. Alabama is one state that ought to be wary of jabbing a thumb into the eye of the private sector that provides good jobs. According to research by the Tax Foundation, its business climate ranks as less appealing than neighboring Tennessee, Georgia, Florida and Mississippi.

According to the National Association of State Budget Officers, general fund expenditures for all states combined grew by 9.3 percent in fiscal 2007. Instead of resorting to the unseemly tactic of walloping big businesses (and crippling consumers) to close budget deficits, governments across the nation ought to focus on setting priorities and shedding wasteful programs. Otherwise, when politicians play the tax-hike tune, taxpayers will be singing a sad song for the economy that once made their own state "sweet home."

This article appeared in The Anniston Star.