A variety of tax cut bills backed by House Republican leadership are slated to be voted on the House floor on Tuesday, including another one-cent grocery tax cut and an increased exemption on retirement benefit withdrawals.
One notable absence from the list of tax proposals is legislation extending an exemption on the state’s income tax on overtime pay.
House Bill 217 by House Minority Leader Anthony Daniels (D-Huntsville) eliminated state income taxes on all overtime pay for Alabama hourly workers by excluding overtime, or any hours worked above 40 hours per week, from the state definition of gross pay. The legislation was passed with broad Republican and Democrat support during the 2023 session.
The law has a sunset date of June 30, 2025. The legislature would have to approve extending the program before the current legislative session ends for the tax exemption to continue beyond that date. Most income in Alabama is subject to a 5% state income tax rate.
Daniels told attendees at a Business Council of Alabama meeting on Tuesday that he planned to file legislation today to make the tax exemption on overtime pay permanent.
“The difference between putting money in the pocket of Alabamians and just cutting taxes and not having a way to rebuild that particular tax revenue…we’re talking about the grocery tax. You’ll excuse my French but who the hell is going to miss one cent on the dollar? I mean, let’s be real. It’s a good talking point. I understand that but we’re talking about putting money, real dollars, in the pockets of hardworking Alabamians that have given us 5% of their first 40 hours. So, they’re going over and beyond to make companies more profitable and the numbers are there,” Daniels said.
Some Republicans have complained about the exemption having a higher cost to the state’s budget than initial estimates, but Daniels argued the state is actually seeing increased revenue from higher economic activity from the overtime tax exemption.
“That’s why, for me, it’s fairly simple. Let’s dynamic score other pieces of legislation and see if they yield the same results. When you look at it, the federal government has a model even in the limited dynamic scoring I was able to do based upon the data that was retrieved from the Department of Revenue and other areas, if we’re returning $400 and something million on something that we say costs $230 million then those help our odds. I talked to my friend (Retirement Systems of Alabama CEO) David Bronner…I’ll be having a conversation with him soon. Those are better returns than Bronner. For me, it makes no sense to allow this piece of legislation to sunset,” Daniels said. “If it sunsets, you’re talking about a $230 million on average tax increase going into an election year. Good luck with that.”
He continued, “It’s a no brainer and I think that’s why the president talked about it when he was running for office and talked about how you know when economists said that by doing this it’s going to explode the economy and increase profit margins like you’ve never seen before and make people more happy to go the extra mile and it provides for them and their families.”
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