Georgia recently joined the growing number of southern states either cutting back or eliminating the state income tax, while Alabama leaders face continued criticism for letting its overtime tax cut expire.
Georgia Gov. Brian Kemp on Tuesday signed a bill authorizing $1 billion in one-time special tax refunds, up to $500 per household. This is the largest tax cut in the state’s history, and it comes as the state faces a $16 billion surplus.
Georgia’s move comes amid a wave of tax cuts in southern states.
Tennessee, which does not have a personal income tax, is now putting pressure on Congress to eliminate it and a host of others at the federal level, boasting of its success without one.
Both Kentucky and Mississippi lawmakers have passed legislation that would decrease the state income tax over several years.
Eight states currently charge no personal income tax: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas and Wyoming.
With a recent boom in states cutting their income taxes, eyes in the state are focused squarely on the Alabama Legislature’s recent actions with the state’s tax on overtime wages.
Lawmakers passed a law in 2023 ending the state's taxing of money earned via overtime pay. The bill, also sponsored by Daniels, passed the legislature but contained a sunset provision, meaning it would require a legislative continuation or expire. The initial sunset provision expired the tax cut in 2027 and capped the total exemption amount at $25 million. However, Gov. Kay Ivey issued an executive amendment removing the cap but changing the sunset to June 2025.
The total fiscal impact on the state's Education Trust Fund was initially reported to be $34 million. However, while the exact impact is not available, a report by the Alabama Department of Revenue said the effect could be as much as $230 million.
While House Minority Leader Anthony Daniels (D-Huntsville), the sponsor of the 2023 tax cut, and others have pushed for a continuation of the tax cut, House leadership instead prioritized a package by State Rep. Danny Garrett (R-Trussville), which passed the House last month.
While some House GOP members were over the moon for Garrett’s tax cut package, others have pointed to the inherent distinction between Alabama and other states. While others are cutting taxes on state workers, Alabama allowing the overtime tax cut to expire would be a de facto increase in taxation for a large portion of the state’s workforce.
Some Republicans have also complained that the exemption is costing the state's budget more than initial estimates, but Daniels has argued that the overtime tax exemption actually increases revenue from higher economic activity.
According to The HR Digest, Alabama's "pioneering move" in slashing overtime tax has already shown a 5% increase in overtime volunteered, according to the outlet.
Despite the bipartisan support in the state, combined with the general appetite for tax cuts amongst Republican governments, the prospect of Alabama extending its cut was killed in its crib by House leadership, with House Speaker Nathaniel Ledbetter (R-Rainsville) spinning concern over the hit the cut would have on the state’s budget.
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