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Week of 4.11.08

Transcript: Taxing the Poor

BRANCACCIO: I have it on good authority that a bunch of you are in the final stages of filling out tax returns. There's been lots of criticism that the middle class is shouldering an increasing chunk of the tax burden at the federal level. But what you may not know that at the state level...poor people can pay a bigger percentage of taxes than the rich.

Senior correspondent Maria Hinojosa and producer Na Eng went to Alabama to look at the questions of taxes and fairness.

Hinojosa: So do they have good prices here? When working mom Callie Greer goes to the supermarket, she has to make some tough choices.

Greer: Honey, where's the sale paper?

Hinojosa: So you always get the sale paper?

Greer: First thing.

Hinojosa: While she and her husband both work, Callie struggles everyday to find a way to stretch her dollars far enough to feed a family of three...

Greer: I really look for deals on canned goods, dried goods...

Hinojosa: On this shopping trip, Callie notices that milk is on sale...

GREER: We ought to get a gallon. We're splurging. Because we usually have to pay five or six dollars a gallon. So it's under four bucks, so we gonna get a gallon.

Hinojosa: Moments later though- her daughter Naya says she wants bagels this week. So Callie reconsiders and puts the gallon back on the shelf.

GREER: So we're gonna actually get the half gallon, 'cause what I'm thinking, like, okay, we might even do something else. So we can get bagels, 'cause we're getting half—half the amount of milk. So—

HINOJOSA: It's always like that?

GREER: Most of the time it's like that.

HINOJOSA: Get this, but we can't get that?

GREER: Yeah. You know, it's not like we can come in every week and say we can get milk. But what—for a whole week, week before last, we had no milk.

Hinojosa: We're here in Alabama to look at a problem that is hurting working families everywhere: tax policies that favor the rich. It's especially tilted here. One reason, Alabama's budget depends heavily on sales taxes. And there's another sting. The state even taxes people on food. Critics say this tax takes a bigger bite out of the incomes of those who can least afford it.

Cashier: $6.07 is your change...

HINOJOSA: When Callie Greer goes to the register, she'll pay an extra ten per cent in state and local taxes.
This tax may not faze well-to-do shoppers, but for Callie Greer, it all adds up.

MARIA HINOJOSA: So you just paid $1.27 in tax?

GREER: Extra, yeah.

HINOJOSA: —and for you, you're thinking, you could've used that $1.27 and done—

GREER: We coulda got more. We coulda got the larger milk. Or—Naya another bagel. And, no, that's—that's not a lot to people. But over a year's time, that's a lot. That's a lot.

HINOJOSA: Although it's exceptional in how it taxes groceries, Alabama is far from being the only state that asks a lot from the poor ...

Pace Hamill: What percent in state and local tax burden does the top one percent income folks bear?

HINOJOSA: Susan Pace Hamill is a professor at the University of Alabama law school. She and her students have analyzed the tax codes of every state in the country. Their conclusion: the wealthy get off easy while the poor pay too much.

PACE HAMILL: The entire nation needs to do much better as far as lifting the burden on—off the poor. The entire nation.

HINOJOSA: While she found her home state of Alabama to be one of the worst offenders, she sees signs that many other states are heading in Alabama's direction...

PACE HAMILL: The whole country's tax policy is getting like Alabama: cutting taxes on the wealthy, cutting revenues supporting the least of these. That's what Alabama's done for a century.

HINOJOSA: With the housing slump and the looming recession, more than half the states across the country are facing major budget shortfalls... as they look to fill those gaps, many states are slashing public services and many are weighing proposals to raise sales taxes while lowering property taxes. This tax swap would give property owners a break while raising the cost of everyday purchases. and that ends up hurting working class families like Callie Greer's...

HINOJOSA: So, people talk a lot about a recession...

GREER: Yeah, yeah. You hear that on the news all the time. You know it's this—"America's in a recession. Wall Street—and all that stuff." And my community and my people, like, "Recession? Hey, we've been in a recession all our life. We're gonna be alright."

HINOJOSA: On the other side of the spectrum... there is the upscale suburb of Vestavia Hills where Jim and Susan Sturdivant live.
When they make dinner for their boys, they feel blessed that they don't have the same worries as the Greer family...

SUSAN STURDIVANT: I just feel very fortunate. We have four healthy, happy sons and live in a community that we feel safe in and have great schools and just feel like, you know, our family is complete here and we have a great community.

HINOJOSA: Several weeks ago, Susan sat down to organize all of the household receipts and financial documents to file their taxes... although they benefit considerably from the state's current tax system, the Sturdivants say it is unjust.

JIM STURDIVANT: I agree that it's not fair to take from the rich and give to the poor, in the—in a Robin Hood type way. But it's certainly not fair to take from the poor to give to the rich. And that's what we're doing now. That's exactly what we're doing now.

HINOJOSA: And how exactly does the state tax its poor? Well, for one thing, state income taxes are almost flat here. That means that Jim Sturdivant, who's making six figures at a top corporate law firm- pays about the same rate as Callie Greer- who works for a nonprofit.
And of course there's that grocery tax we mentioned. Alabama is one of just two states that makes no special exceptions for groceries.
And the upper class benefit more from another Alabama tax rule that allows everyone to deduct their federal taxes from their state taxes. That's a small saving for the middle class, but for top earners, it saves them thousands of dollars every year.
The Sturdivants don't enjoy paying their taxes any more than most people do. But guided by their Christian faith, they say they are willing to contribute a little more.

JIM STURDIVANT: I certainly am not interested in paying a lot more. But I feel like people at the higher end of the scale can pay a little bit more and make a big difference.

HINOJOSA: Right now, there is a movement afoot to change the way of doing things in Alabama.
Rep. Knight: Alabama Arise, are you ready?
Crowd: Yes!
Rep. Knight: Yes, we're ready....

HINOJOSA: John Knight wants to change the tax laws. The Montgomery representative is working with a grassroots coalition called Alabama arise to get rid of the grocery tax.

HINOJOSA: Do you believe that the current tax structure in Alabama in fact taxes people further into poverty?

REP. KNIGHT: Oh, absolutely.

HINOJOSA: How?

REP. KNIGHT: It does. Because it's so regressive. We have one of the most regressive tax structures of anywhere in the nation. And what happens is the—when you get out and get a job and then you are subjected to Alabama income tax, if—if you're an average family you're payin' more percentage-wise in taxes than those wealthy people.

HINOJOSA: How much more? Well, the people at the bottom are paying nearly eleven percent of their income, while those at the very top are only paying four percent.
To make up for the loss in revenues from the grocery tax, John Knight has written a bill that will eliminate the federal deduction. He says that deduction is a boon for the highest income bracket.
No doubt knight has an up-hill battle in a state where taxes are a charged subject...and change is viewed suspiciously...
He'll need the help of Callie Greer - who has turned into a community organizer. Callie used to think that these rules were just the way things were. But in 1999, a family tragedy changed her. Her son mercury was shot dead at the age of 22. After that loss, she began to learn more about the issues affecting her community. And she decided to speak up.

GREER: The laws are set up to just continue take from—from people that work hard, are trying to do right, trying to have a life...

HINOJOSA: This past February, she took part in a citizen lobby day organized by Arise... there, she cornered Howard Sanderford, a representative who opposes this tax reform effort.

GREER: I just wanted to ask you a couple questions...

HINOJOSA: The voters in his wealthy district want to keep their federal deduction.

Rep. Sanderford: I think it's going to have a tough time, because what you're doing - my constituents don't want to give up their federal income tax deduction,

Greer: - But your people, it's the state of Alabama, you represent all the people, all the citizens...

rep. Sanderford: No I don't. I represent the 43,000 that vote for me and help me come back so I can represent them.

Greer: Well, but isn't the whole of Alabama connected?

HINOJOSA: The house is set to vote on the tax plan as early as Tuesday. Yes, that's April 15 - tax day. Right now, they're just a few votes shy of the number they need to get it passed. Organizers will be lobbying intensely this weekend to convince the members who are still on the fence. But Robert Bentley is one house member who plans to vote against the bill.

HINOJOSA: As a legislator from Alabama, when you know that Alabama is one of the most regressive states in this country in terms of taxes, how does that sit with you?

REP. BENTLEY: The state belongs to the people. And they have a right to pay the taxes that they will pay. And I don't get—I don't get upset about it, I really don't. I have too many things to worry about, that is not one of the things that's high on my list to worry about. We do the best we can with what we have, and actually Alabama does a great job with what it has.

HINOJOSA: But the family that we were with every time they have to go and buy food, they're thinking about cutting corners. Can't buy a gallon of milk, it's going to have to be half a gallon of milk, we're going to have to stretch it out.

REP. BENTLEY: Listen—I understand and I'm fully sympathetic with people who are poor, they don't have enough money to buy food. But, you know, there—there are avenues through which if they really are poor that they can get some help.
They may not be poor in spirit, they may just be poor in not being able
to buy all the conveniences that you think they should have. That doesn't
mean they're not happy. You can be happy and be poor. Now, I'm not
saying that you can be hungry and be happy, I don't mean that. But
money does not make you happy.

HINOJOSA: Nearly one out of four children here lives in poverty. Illiteracy is rampant. And Alabama has one of the fastest growing income gaps in the country.
As more manufacturers move into the area, Alabama's economy has been picking up steam in recent years. But Alabama's low, low taxes has meant some of the lowest spending in the nation on public services like education, health care and mass transit.
To meet some people who have been left out of the economic boom - we drove south of Montgomery to a small town called Pine Apple.
There, we visited with Calvin and Louise Ramsey on their front porch.

HINOJOSA:Have you or your family ever gone hungry?

LOUISE RAMSEY: Yes.

CALVIN RAMSEY: Yes. That's where I had to go and—and kill a deer then. (chuckles)

HINOJOSA: You—you were so hungry you had to go hunt?

CALVIN RAMSEY: Yes. I—you know, then—you know how you don't too much want to borrow from your mother and your sisters and things. Some time we have to do that.
The Ramseys have been married for twenty five years—and with their children —have weathered both good and bad times together. For the past decade, Louise has been a housekeeper at a local motel- earning $7.50 an hour. Calvin earns about the same doing maintenance work.

HINOJOSA: The both of you have been working your whole lives.

CALVIN RAMSEY: Yes. Yes.

HINOJOSA: You've been holding down jobs.

CALVIN RAMSEY: Yes. I've been working ever since I was about like eight. I used to pick up hay right over the hill over here.

HINOJOSA: But even in all that lifetime of all that work, it's not like you have a bundle of money saved up for extra special things. Or to fix up your house.

CALVIN RAMSEY: No.

LOUISE RAMSEY: No.

HINOJOSA: Last year, the couple lost their home to a fire and found themselves starting from scratch. After bouncing around they were finally able to move into this place...

Hinojosa: So you want to show us around?
Calvin showed us around. He's busy fixing this place up. It took him and his wife an entire year of scrimping and saving just to get a working bathroom.

HINOJOSA: So you just got this—

CALVIN RAMSEY: Just got this.

HINOJOSA: new bathroom in the past couple of months?

CALVIN RAMSEY: Yes. Yes.

HINOJOSA: What were you doing before you had a bathroom?

CALVIN RAMSEY: Well, we had to improvise.

HINOJOSA: The Ramseys filed their taxes early this year. To support a household of five, they pulled in a combined income of just $21,000. But get this - they have to pay state income taxes on that.
Knight and arise want to change that by exempting families who make less than the federal poverty line from paying state income taxes ... they don't want to see desperate families who are just trying to survive also having to pay hundreds of dollars to the tax man.
Alabama is not alone. In fifteen states, a family of four living below the federal poverty line pays state income taxes.
After those taxes chip away at your gross earnings, Calvin says there's really not much left in a working person's take-home pay.

CALVIN RAMSEY: I mean, you've got people hard—working every day. And 'cause they gross is higher than what they bring home. But when you bring it home you have to chip, chip, chip, chip until you pay what you can pay.

LOUISE RAMSEY: —'cause that tax gone come out of what you make.

HINOJOSA: What do you know about the taxes that you have to pay, for example, every time you buy something, even milk, bread or cheese?

LOUISE RAMSEY: Well, that just ridiculous. You can't go in a store and buy everything you need. When you get to the counter, they adding taxes. But we don't be knowing what they adding it for.

HINOJOSA: What do you think about that?

LOUISE RAMSEY: I think they're wrong. That's just wrong.

CALVIN RAMSEY: I wouldn't have no problem with it if it was for, say, someone that really worse off than I am. I would have no problem with that. But when you're giving it to people that—that—

LOUISE RAMSEY: That don't need it.

CALVIN RAMSEY: That don't need it.

HINOJOSA: The Ramseys have noticed how their taxes have gone to subsidize some enormously profitable corporations... Mercedes, Hyundai and Honda have each received hundreds of millions of dollars in tax giveaways to locate their plants here.
Robert Bentley says he would like to get rid of the grocery tax, but he argues the state can't afford it. But he and his colleagues did manage to find over 800 million dollars in tax incentives for the German steel company Thyssen Krupp.
Company official: this is a great day for Thyssen Krupp!
The company has effectively been exempted from paying corporate state income taxes for thirty years.

HINOJOSA: You say, sir, that everyone should pay their fair share of taxes in the state, and yet you voted to give Thyssen Krupp basically 30 years of not having to pay taxes in the State of Alabama.

REP. BENTLEY: I did, but they're going to supply thousands of jobs. And that's going to help the poor get out of poverty.

HINOJOSA: But did it have to come at such a high price?

REP. BENTLEY: Well, it does if you're going to recruit that type of company because we were in competition with a number of states.
We are rated as maybe the number one state in the United States as having new industry coming into Alabama because we have good workers, because we have low taxes. Low taxes are very important. That brings in industry into the state of Alabama, low taxes are very important.

HINOJOSA: Thyssen Krupp also got the taxpayers to pick up the tab for a lot of big expenses: getting new land, maintaining roads, and training employees.
This happens in communities throughout the U.S. Every year, companies convince states and local governments to fork over more than fifty billion dollars in tax giveaways by promising them jobs.
Democrat John Knight also voted in favor of those tax breaks, but he argues the poor need a break as well.

REP. KNIGHT: Even as we continue to attract industry to this state, the gap in terms of poverty continues to increase. And that is totally unacceptable. It is totally unacceptable because it's the same people that we are taxing further into poverty that's paying these incentives for companies to come here that they can't be employed. So this must change.

HINOJOSA: When people say they find it hard to believe that there are people in American that are hungry who are working people, what do you say?

CALVIN RAMSEY: They need to switch places. Each one of them, each legislature up there, and plus the government oughta just—just—

LOUISE RAMSEY: Especially the President.

CALVIN RAMSEY: —come and stay with somebody for a month or a year. And I guarantee you, when he feel his stomach growlin' and there ain't no food. Bet you get on the phone and callin' to 'em, come get him.

LOUISE RAMSEY: Yep. Sure will.

CALVIN RAMSEY: But see—but we can't do that.

HINOJOSA: As a working man, Calvin, what does it do to you when you know you're hungry, when your children are hungry?

CALVIN RAMSEY: It destroy me. It really do. When I can't—when I can't do give my family the things that they really de—and truly deserve, it—it really destroy me.

HINOJOSA: The current effort to reform Alabama's tax laws is not the first. Five years ago, republican governor Bob Riley proposed a radical plan that would have raised some taxes on the rich and lowered taxes on the poor.

Gov. Riley: We're saying we're not going to balance our budget on the backs of the poor any longer.

HINOJOSA: That plan also would have gotten rid of the sweet deal large landowners and timber companies have had for generations. They pay a pittance in state property taxes - about a dollar per acre. The low rates have starved the public schools.
Despite furious lobbying from groups such as the Alabama farmers federation —the plan managed to pass in the state legislature. But it had to clear one more hurdle - a statewide referendum.

Pace Hamill: The special interests representing the big timber companies and others ran a horrible campaign of lies and distortions designed to scare people. And they scared them.

HINOJOSA: Special interest groups ran ads like this one...telling people their taxes would be raised.

political ad: "Vote No on the Riley tax increase"

HINOJOSA: But the governor argued that for most families, it would have meant either the same or lower taxes.
The tax reform amendment was defeated by a margin of two to one. Many of the people who would have benefited from it didn't fully understand the complex tax plan.
Louise and Calvin were among them. Although they personally would have seen lower taxes -they voted against it. They said they just didn't trust their politicians.

Pace Hamill: We lost because the tools of democracy don't work in Alabama. Because much of our population has been undereducated and oppressed to a point that they have lost the ability to use their right to vote in the most constructive way to benefit their lives.

HINOJOSA: Susan Pace Hamill says the uneven tax system and inadequate spending on education have created an underclass that is unable to participate effectively in a democracy. It's a downward spiral she fears will spread elsewhere.

PACE HAMILL: When I go speak in other states that have not gotten to this point, I tell them, do not let this happen to you. Do not let your tax situation and your public education funding and support render huge parts of your people unable to use democracy to better themselves. That's where we are here. And I'm afraid that's where we're going as a country.

HINOJOSA: Knight has learned a few lessons from that 2003 loss. His plan doesn't overhaul the property tax system. Its goals are much more modest. He just wants to ease some of the pressure off working families like the Ramseys... and ask a little bit more from families like the Sturdivants.
Jim Sturdivant, for one, doesn't think that's asking too much.

JIM STURDIVANT: You can argue that any kind of tax system is redistribution of wealth, if you wanna throw that phrase around. But, you know, I don't know about you, but when I go through a traffic signal, I want the traffic signal to work. And I—I don't mind that some people might call that a socialized traffic signal or whatever. But, you know, the—the fact is that you have to have a sound, responsible tax policy to be able to have a modern, industrial, functioning society.

HINOJOSA: If the Knight plan goes against the odds and passes in Montgomery- it will also need to go for a vote by the people in November. Callie Greer is ready for that. She says it's time for the privileged to pay their fair share.

HINOJOSA: People will say, "Well, maybe you shouldn't have bought a house. Maybe you shouldn't buy your kids new clothes. Maybe that's what needs to change...and not the tax structure."

GREER: And I would say, "Maybe you should stop selling the American dream. Maybe you should stop saying that you could do this in America, that you can own a house, that your child can get a good education." I would say, "Pay your fair share. Pay your fair share." I've been payin' it for all these years and didn't even know it. Now that I know it, I want you to pay up.

BRANCACCIO: And that's it for NOW. I'm David Brancaccio.
We'll see you next week



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