This week, Gov. Kay Ivey sent her Education Trust Fund (ETF) and General Fund (GF) budget requests to the legislature for consideration. While these FY 2024 budgets are important, Ivey’s proposed FY2023 ETF supplemental funding bill, and how it differs from the priorities of other lawmakers, provides enlightening insight into her priorities for the 2023 session.
While Ivey is doubling down on one-time stimulus checks for Alabamians, there seems to be a building movement from other lawmakers to forgo rebates altogether or supplement them with permanent tax relief. Neither Ivey’s ETF and GF budget proposal, nor the supplemental appropriation bill call for any permanent cuts.
Ivey’s ETF supplemental bill would appropriate the ETF’s approximately $2.8 billion surplus. As a reminder, the surplus represents excess tax dollars — above and beyond the funds needed for the 2023 enacted budgets — that came directly from Alabama taxpayers.
While the supplemental covers several areas, the bulk of the spending would be dedicated towards one-time tax rebates ($966.7 million), providing additional funding to school systems to help offset the impacts of inflation and for additional capital projects ($604 million), one-time expenses of the Alabama Community College System ($252.4 million), one-time expenses of the Department of Commerce ($164.5 million), with much of the remaining funds dedicated towards deferred maintenance and capital projects at state universities.
To Ivey’s credit, nearly $1 billion in tax relief, rebates or otherwise, is not an insignificant sum. If approved by the legislature, it would not provide the long-term benefits of permanent tax cuts, but it would return $400 to every individual tax filer and $800 to joint filers. It also means that there would be nearly $1 billion less available to grow state government. It’s not a homerun, but it is better than doing nothing.
However, some lawmakers are realizing that permanent tax cuts, not rebates, are best for Alabama.
On Tuesday, Lt. Gov. Will Ainsworth spoke to the Business Council of Alabama’s Government Affairs Committee, telling the group that he is not against rebates, “but I’m going to continue to push that I think tax cuts is a better policy than rebates.” He continued, “Why is that? When people are looking at our state, I want to make sure from a tax policy standpoint that we’re the best in the country. That’s going to continue to drive people here.”
Although Ainsworth did not present specifics on permanent options he may pursue to reduce government’s overall tax burden, he previously indicated he is working on legislation to reduce the grocery sales tax.
Ainsworth understands that a one-time rebate alone will do nothing to improve the overall tax environment in Alabama. It would not make Alabama more competitive in attracting new residents and businesses to the state, while permanent tax reductions could aid in doing both.
Take corporate tax rates. Alabama’s 6.5% statutory corporate income tax rate is higher than much of the Southeast. According to the Tax Foundation, Alabama ranks 41st in the nation when it comes to business tax climates, well below our neighbors in Florida, Tennessee, Mississippi, and Georgia. While Alabama’s effective rate is around 5.2%, a 2020 report from the Legislature’s Joint Legislative Task Force on the Tax Cuts and Jobs Act found that having a higher statutory rate than neighboring states created a “meaningful competitive disadvantage” when it came to developers and companies looking to locate in the region.
On the personal income tax side of the equation, Tennessee and Florida levy no income tax. Georgia and Mississippi each enacted legislation last year to reduce income taxes. Furthermore, Alabama and Mississippi are the only Southeast states that still fully tax groceries. We are falling behind other states.
If the goal is to “drive people here,” as Ainsworth said, permanent tax relief is a much more effective method to attract new people and businesses to Alabama than a one-time rebate check that will not have lasting impacts. The money, your money, is available to do so.
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.