PHENIX CITY, Ala. — The City Council of Phenix City voted to increase sales taxes during their meeting on July 19, 2022.
Residents will now endure a total sales tax of 9.75% within city limits, placing the city among the top five highest total sales tax rates in the nation.
Based on the most recent data available from 2021, Phenix City is now tied with Memphis, Tenn. for having the fifth highest total sales tax rate in the U.S.
The increase raised local city sales tax by 0.25%, from 4.5% to 4.75%. That number combines with the county tax of 1% and the state tax of 4% to accrue the total sales tax rate of 9.75%, which will now be paid by all within city limits.
City Council members discussed the topic for a mere 35 minutes of heated debate before bringing the motion to a vote.
The second reading of the proposed ordinance was read by Mayor Eddie Lowe — a Democrat who described himself as a “kind of Pollyanna, utopia guy” in a 2016 New York Times article.
When Lowe asked for a motion to approve, Council member Arthur Day, Jr. (District 3) responded immediately.
Lowe was then forced to wait as no council member was immediately willing to second it. Lowe then asked the council again.
Council member Vickey Carter Johnson (District 2) then seconded the motion, allowing it to proceed through into a debate and then ultimately brought to a vote.
The argument in favor of the tax increase focused on three topics which all concerned short-term budgetary concerns: workforce retention, civil infrastructure, and the city’s credit rating. Mayor Lowe summarized the topics as he understood them during the debate:
“It appears that there’s three component — correct me if I’m wrong, anyone — we’re lookin’ at, uh, hiring and retention, we’re lookin’ at all the infrastructure which include roads and everything else, and we’re also lookin’ at credit rating.”
Council member Donald “Steve” Bailey (District 1) was the first to raise opposition to the motion. Bailey offered a more conservative approach to the issue while also recognizing the poor timing of such an extreme measure:
“I know the city needs money. I know that everybody does. But I still have the same reserves and feelings I had the first time this came before us. It’s all about timing. It's, everything has gone up in this country; locally, for us, everything in my business, everything in my home, everything for all of us — I’m no different than everybody else sitting out here. And the thing that I have pause with the most on this is: the very people that this is going to be the hardest on are the few that absolutely are going to be hard-pressed to be able to outrun any other increases, uh, from gasoline being up, to the power’s fixin’ to go up, uh, we’ve had an increase in our sewage and water rates, uh — which we needed, uh, and I voted for it, and it's needed. But just the cost of food, the cost of rent, the cost of housing, the cost of vehicles — every time you turn on the t.v. everything is up — and I just have pause to add any more to the burden, to some of the people that absolutely just seem to can’t get their head above water … and they’re the ones who are having the hardest time, and they’re the ones that have to shop locally. They don't have the option to go across the river or go to another town, or maybe order something off the internet and have it shipped to their house. It just seems to me that the burden’s going to be harder on them, and the elderly.”
City Manager Wallace Hunter spoke out in favor of the tax increase, citing the city’s budgetary shortcomings. Hunter explained that workforce retention is a large financial concern for the city and suggested that raising the sales tax is a preferable way to make up for the city’s loss in the workforce. Hunter summarized this in a way that appeared as him trying to avoid responsibility and blame upon himself in the future:
“See it’s a matter of time before y’all have to look me in the face and say ‘Hunter, you’re not getting the job done.’ That’s coming soon. Because we can’t compete like we need to compete to hire those people, and I have to understand that. And the people, the other people here have to understand that too: we are competing to take care of this city overall.”
Bailey responded to Hunter’s bureaucratic and utilitarian approach by offering several alternatives of a more conservative nature to avoid the city taking the extreme measure of increasing taxes:
“I agree with you on taking care of the people in this city — that's what we do right here, and the citizens … I’m just wondering: Can we take the money that we haven’t spent in the last year or two on the employees that we’re short, and raise some of this with some of that money to see if that starts fixing the problem? And if it does, I’d be willing to revisit this … I’d be more for an occupational tax … maybe limited to three years, five years, or some nature of that to see if that helps … I just know for a fact, and I’ve discussed this with other people: once something goes up like a sales tax, it never does come back down … I’d be more for something that’s temporary to see if that does fix where our issues lie. ”
Council member Arthur Day, Jr. (District 3) responded with a plea of urgency to Bailey’s suggestions of alternatives. Day insisted that if the city waits to take appropriate action, more workers would continue to leave the workforce and seek better employment opportunities elsewhere.
In spite of the arguments in favor of the increase in sales tax, the data remains clearly in support of Bailey’s suggestions of alternatives.
The Tax Foundation, a leading tax policy research organization that has provided trusted insights to policymakers since 1937, publishes an annual mid-year report of research findings derived from the nation’s more-than 11,000 sales tax jurisdictions.
According to the Tax Foundation, “Research demonstrates a rise in cross-border shopping and other avoidance efforts as sales tax rates increase.”
As in many other demonstrable examples, raising taxes almost always results in less tax revenue; a counterintuitive reality that escapes many policymakers.
When sales tax rates increase, fewer and fewer people spend money within that jurisdiction. They choose to spend less money elsewhere where taxes are lower, resulting in less tax revenue collected than before the rate was increased.
The unfortunate reality of this phenomenon is that the people who wind up paying the higher tax rates are those who do not often have the option to shop elsewhere: the poor and the elderly.
This same phenomenon often ironically results in a decrease of skilled labor within the jurisdiction's workforce — which is the very problem that those in favor of the tax increase say they wish to solve.
You can watch the full City Council meeting during which the debate and vote took place here via the City of Phenix City, AL’s YouTube Channel. The topic begins to be discussed at the 49:57 mark within the video.
UPDATE: August 2, 2022: The minutes of the July 19, 2022 Phenix City Council Meeting were approved by a vote of the Council during their scheduled meeting of August 2, 2022. You will be able to view the approved minutes once they are published via the City of Phenix City's website here.