The 2023 regular legislative session kicked off on Tuesday, with Alabama Gov. Kay Ivey delivering her State of the State address to finish the day. Judging from Ivey’s speech, as well as several bills filed by Alabama lawmakers, it looks like some tax relief is in the cards for 2023.
The main reason we are talking about tax relief is because the state has a $2.7 billion revenue surplus in its Education Trust Fund budget, the largest in Alabama’s history. But there are few, if any, proposals to restore these excess tax dollars taken from Alabamians and provide them with the permanent tax relief that many of our neighbors have already undertaken.
The focus is on one-time rebate checks and targeted tax relief instead. Lawmakers should change that in the coming months. Still, there are worthwhile tax relief options being discussed, several coming from Democrats.
Ivey outlined her vision for how some of this surplus should be spent, calling on lawmakers “to put nearly a billion dollars back into the hands of hardworking, taxpaying Alabamians through one-time rebates of $400. That means $800 for our working families, and it couldn't come at a better time." The $400 per tax-filer figure Ivey is calling for is double what was previously proposed.
This is a victory for taxpayers because it means more of our hard-earned dollars will be returned. Additionally, by doubling the rebate amount, lawmakers will have approximately $500 million less to grow Alabama’s state government.
However, one-time tax cuts offer only short-term benefits. Permanent tax relief would offer many more long-term benefits to the state. One billion dollars, for example, would cover the potential revenue loss of repealing the state’s sales tax on groceries for nearly two years.
Regarding the grocery tax, state Rep. Chris England (D-Tuscaloosa) introduced a bill allowing local governments to repeal city and county grocery taxes. The city of Clay did just that when it reduced its grocery tax last year without legislative approval, and is already seeing benefits. City revenue has “stayed the same or a little bit more,” Mayor Charles Webster noted. Residents save money every time they go to the store, and the city was able to undertake several improvement projects with the additional revenues.
A statewide grocery tax repeal could be coming as well. Alabama House Minority Leader Anthony Daniels (D-Huntsville) has floated the idea of a month-long grocery tax holiday later this year. Doing so would provide an opportunity to assess the impact on state budgets, he believes, as well as providing temporary relief to citizens. Daniels suspects the revenue decrease from eliminating the grocery tax will be recouped in other areas. He is also proposing the state eliminate income taxes on overtime pay, incentivizing Alabamians to work.
A one-month tax holiday is a start, but legislators should continue to push for full repeal of the grocery tax.
Alabama Republicans are also trying to build on last year’s tax cuts, which saw a total of $160 million targeted relief, including State Sen. Dan Roberts' (R-Mountain Brook) work to ensure federal stimulus payments to Alabamians weren’t taxed by the state.
State Sen. Andrew Jones (R-Centre) introduced a bill this week to cap local occupational taxes at 1%. Cities that already have a tax of more than 1% (currently seven) would be required to lower their rates by 0.2% annually until reaching the 1% maximum. Last year, Jones proposed repealing all occupational taxes over a 20-year timeframe.
State Sen. Arthur Orr (R-Decatur) was one of the first Alabama lawmakers to suggest using the state’s record revenue surplus to provide a tax rebate to citizens. Now he is going further, proposing changes to Alabama’s income tax code.
Senate Bill 47, which has a bipartisan group of 25 co-sponsors, would eliminate the state’s 2% income tax bracket. Unfortunately, the 2% rate only applies to the first $500 of taxable income. Neighboring states are making more impactful changes. Georgia, for example, will increase the threshold at which individual filers begin paying taxes to $12,000 in 2023. Alabama lawmakers should consider a similar change.
Orr has also filed a bill to lower the state’s top individual income tax rate from 5% to 4.95% over the next five years. Orr should be commended for his willingness to propose income tax rate reductions; however, our neighbors and direct competition in Florida and Tennessee levy no individual income taxes. Georgia is moving towards a flat tax, lowering its top rate by 0.76% once fully implemented. Mississippi has already repealed its lowest tax bracket and its highest rate will decrease by 1% in the next four years. Mississippi Gov. Tate Reeves (R) continues to pursue a full elimination of state income taxes.
While it is encouraging to see Ivey talking about tax relief and lawmakers introducing bills to reduce taxes, Alabama has a unique opportunity to provide historic permanent tax relief to citizens. The legislature should use these proposals as a starting point and continue to push for bolder relief for all Alabamians.
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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