MONTGOMERY — The Alabama House of Representatives passed a four-bill tax cut package sponsored by Education Trust Fund (ETF) budget chairman State Rep. Danny Garrett (R-Trussville) on Tuesday without any opposition.
The bills were dropped before lawmakers took a week-long break from meeting in Montgomery for a "constituent work week."
The package addresses taxation on groceries, income tax deductions, and retirement plan deductions. While some Democratic lawmakers took some time to express concerns over the hit the ETF will take because of the package, all four bills passed unanimously in just under an hour.
The lack of Democratic filibustering was a surprise since House Democrats have been trying to extend the state's tax exemption on overtime pay. With this new tax cut bill package taking an estimated $192 million bite out of the state coffers, Democrats' hopes for continued cuts to overtime are slim.
"With the passage of this tax cut package, the Alabama House of Representatives has now passed 15 tax cuts since the current quadrennium began in 2022," said House Speaker Nathaniel Ledbetter (R-Rainsville). "As shopping carts get lighter and grocery bills continue to rise, I am particularly proud that we were able to double down on the grocery tax cut, which is the largest cut in state history and will save Alabama families a minimum of $236 per year."
First up was House Bill 386 (HB386), which increased the state's grocery tax cut by an additional 1%, cutting the total tax in half since 2023. Lawmakers reduced the 4% sales tax rate on groceries, taking it down to 3% in September 2023. However, an expected additional cut did not come the following year.
The fiscal note on HB386 estimates a $121.6 million hit to the ETF and a $281,750 reduction to the state's General Fund, bringing the total estimated loss to $121.9 million.
The bill received resounding support in the House. However, some Democratic lawmakers have spent time complaining about potential issues related to the threat of lost federal funds in the Donald Trump Administration.
State Rep. Thomas Jackson (D-Thomasville), pointing to a recent cut in federal funds from the USDA, said further hits to the state's coffers could have adverse effects in the future.
"I think after we have lost $16 million USDA federal funds recently, this is going to put Alabama in a bad situation," Jackson said.
"We believe this is a sustainable tax cut that will not jeopardize the budget," Garrett responded.
HB386 ultimately passed after a technical amendment with a vote of 102-0.
Next was House Bill 387 (HB387), which would revise the law preventing local governments from lowering their grocery tax.
The definition of "food" for state sales and use taxes applies to county and municipal taxes. Municipal and county governments may reduce their sales and use tax rate on food by 25% in any year they meet specific growth requirements.
HB387 would remove the 25% growth requirement, allowing local governments to cut grocery taxes at their discretion.
HB387 likewise passed with a 102-0 vote.
The third bill in the package, House Bill 388 (HB388), would double the state's tax exemption for defined certain retirement plan withdrawals.
Under current law, the first $6,000 of taxable retirement income for individuals who are 65 or older is exempt from Alabama income taxes. This bill would increase the exemption amount to $12,000. The bill's fiscal note estimates a $44.8 million decrease in income tax receipts to ETF.
"If you are an individual using retirement savings out of a 401K, an IRA, anything that's a defined contribution plan, previously, we'd exempted the first $6,000 from Alabama tax, for a couple that would be $12,000," Garrett stated. "This bill will basically double that so that the exemption would be $12,000 per person, [and] $24,000 per couple. And this would be beginning with the tax year of 2026."
HB388 passed 103-0.
Last in the package was House Bill 389 (HB389), increasing the range of optional standard income tax deductions.
Currently, taxpayers are allowed an optional standard deduction and dependent exemptions in computing income subject to the tax. This bill would increase the optional standard deduction and expand the adjusted gross income range allowable for the maximum optional standard deduction. It would also cause the dependent exemption to raise the threshold at which the state imposes individual income taxes.
A complete list of the adjusted deduction adjustments can be found here, but the bill's fiscal note claims the ETF would take a $23.8 million annual hit after $18.9 million in fiscal year 2026.
HB289 likewise passed 102-0. The package will now go to the Senate for deliberation.
"I want to say thank you to the members; $192 million in tax cuts, coupled with the previous grocery tax, about $250 million in tax cuts for all Alabamians," Garrett stated.
He continued in a statement after the package passed, "Any time the Legislature is in a position to cut taxes and help every single Alabamian hold on onto more of their hard-earned money, we need to act upon that opportunity. Everyone is experiencing sticker shock at the grocery store, senior citizens are living on fixed incomes that do not go as far as they once did, and every working Alabamian benefits from increasing the optional standard deduction. I am proud to carry this package and look forward to continue working to provide relief to the people of Alabama."
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