Alabama’s 2023 regular legislative session ended Tuesday.
Progress was made this session. Most notably, Alabama will finally repeal a portion of the state’s grocery sales tax, though it could take several years to fully implement. But even where progress was made, there is more work to be done.
In a Friday appearance on Alabama Public Television’s “Capitol Journal,” House Speaker Nathaniel Ledbetter (R-Rainsville) called the session “historic” because of several bills passed that he says will benefit the state for years to come. “[W]e passed the grocery tax, which I think is huge for Alabama families,” Ledbetter said. “We passed the rebates where everybody’s going to get a check back. So I think it’s one of those sessions that we can look back on for years to come.”
Ledbetter also noted a bill sponsored by House Minority Leader Anthony Daniels (D-Huntsville) exempting up to $25 million in overtime wages earned by Alabamians from state income taxes. “We passed the overtime bill which I was a cosponsor to with the leader of the Democratic party,” Ledbetter said. “I mean, that never happens, but I felt strongly about that bill because working men and women of Alabama needed that break.”
The 2% grocery tax cut is a victory for taxpayers. Alabama was one of just three states that fully taxed the sale of food items. Advocacy groups have worked tirelessly for decades to make a repeal reality.
However, at a time when the state is collecting more revenue than at any point in history and had a $2.8 billion revenue surplus in the Education Trust Fund (ETF) to start the year, why are there conditions attached to the partial repeal?
No matter what happens, a 1% grocery tax cut will go into effect Sept. 1, 2023. This is significant progress, but it could take several years for the second phase of the cut to happen. An amendment added by the Alabama Senate requires 3.5% projected revenue growth in the ETF before the additional 1% is repealed. State Sen. Arthur Orr (R-Decatur), who sponsored the amendment, says that the likelihood of the cut fully taking effect in 2024 is “possible but perhaps not probable.”
While continued growth is projected through 2024, it was always expected to slow from the record pace of the past few years. Orr argues that the ETF could not “bear the $150 million we’d lose in that particular year” if growth were below 3.5%. For context, the 2024 ETF budget that is now law increases 2024 spending by 6.5%, over half a billion dollars. The additional “cost” of the second phase of the grocery tax repeal is about 1.7% of approved 2024 spending, so Alabama’s government has the money to fully implement the cut next year.
As Ledbetter alluded, the overtime tax repeal is also historic. To my knowledge, Alabama is the only state pursuing such a policy. An innovative way to address the state’s labor shortage and provide relief to Alabamians, it was spearheaded by a Democrat and gained nearly unanimous support. This is a rarity in Alabama politics.
But like the grocery tax, the legislature attempted to reduce the impact of the overtime tax repeal. The legislation initially provided a permanent exemption of overtime wages, with no limitations. The version that eventually passed would sunset the tax exemption after 2026, capping total available credits at $25 million annually.
It is a major step in the right direction, but why limit the amount given the state’s projected budget surplus? Not only will the exemption incentivize employees to work longer hours and keep more of what they earn, it could also alleviate a problem that impacts the entire state. The legislature should build on this progress and work towards enacting a full and permanent exemption next year.
The 2023 session saw the legislature enact the largest budgets in state history. More taxpayer dollars than ever before will be spent on Alabama’s government in 2024. And while progress was made on tax relief efforts, more of your money should be returned to you. There remains much work to be done.
Justin Bogie serves as Fiscal and Budget Reporter for 1819 News. The views and opinions expressed here are those of the author and do not necessarily reflect the policy or position of 1819 News. To comment, please send an email with your name and contact information to: Commentary@1819News.com.
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