As the Alabama Legislature gets set to resume the 2022 regular session this week, legislation to take less from Alabamians by cutting taxes is finally a topic in Montgomery.
Alabama’s government took more revenue from citizens than ever in 2021. While any attempt to lessen the tax burden is a move in the right direction, lawmakers should be thinking bigger. Many other states are. The question is, why isn’t our legislature?
Again, that’s not to say that all is lost or no progress is being made. The most notable bill to date was introduced on January 18th by Representative Mike Holmes. Holmes’ House bill 174 would eliminate the state’s 4% share of the sales tax on groceries. It is estimated that ending the state grocery tax would save taxpayers about $600 million annually. There are other grocery tax repeal bills, but they would seek to recoup those revenues through other tax increases.
The Alabama Policy Institute has long supported eliminating the grocery tax. Especially during a time of near record-high inflation on food and household items, repealing the tax would immediately benefit all Alabamians.
State Senator and education budget committee chairman Arthur Orr has introduced two bills to provide tax cuts to Alabamians. Senate bill 18 would exempt up to the first $10,000 taken out of defined contribution deferred compensation plan from state taxes for individuals at least 65 years of age. Senate Bill 19 would raise the income threshold for the dependent tax exemption, raise the income floor for the state’s optional standard deduction, and increase the standard deduction by $1,000 for joint filers and $500 for single or separate filers. In total, the two bills are estimated to reduce taxes by $57 million per year.
During the special session, Senator Dan Roberts introduced a bill that would ensure that benefits received through the federal American Rescue Plan Act (ARPA) are non-taxable for state income tax purposes. However, since the bill was not in Governor Kay Ivey’s special session call, it did not receive consideration, though a similar bill has been filed for the regular session. Roberts says the proposal would save Alabamians nearly $88 million.
Missing from the tax cuts discussion thus far is any effort to reduce individual and/or corporate income tax rates in Alabama. This is particularly alarming given that numerous other states have parlayed record revenues and an influx of billions of dollars in federal stimulus funds into income tax cuts.
In 2021, 13 states introduced legislation to cut corporate or personal income tax rates. In mid-December, the Arkansas General Assembly held a special session where it enacted legislation to drop the state’s top individual income tax rate by 1% over the next four years. Even though the General Assembly will convene in mid-February, Arkansas lawmakers thought the issue was too important to wait until the regular session.
So why hasn’t any Alabama legislator introduced a bill to reduce individual or corporate income tax rates? For a time, ARPA blocked stimulus funds from being allowed to be used to cut taxes. However, a federal court ruling in November 2021 blocked the restriction, paving the way for at least a portion of ARPA funds to be used to reduce taxes.
Whether or not stimulus funds can be used should not matter though. Final fiscal year 2021 revenue numbers show that Alabama’s government took in almost $1.5 billion in new revenue compared to 2020. That’s money out of your pocket, not a gift from the federal government.
None of the tax cut proposals mentioned above that have been introduced in the Alabama Legislature this year are inherently bad. Repealing the grocery tax would mean major progress for the state and immediate relief for citizens.
But as the regular session reconvenes lawmakers should look towards additional bigger and bolder proposals to take less from Alabama citizens. And there are several options available.
Following the example of other states and reducing individual and corporate income tax rates would aid the continuing pandemic economic recovery. Another option would be to eliminate the state’s business privilege tax, which is basically a fee for the “privilege” of operating a business in Alabama. Finally, the state could freeze the current gas tax rate so that future automatic increases do not go into effect.
Lawmakers have two options ahead of them. They can use ARPA funds and the state’s record $1.5 billion tax revenue increase to grow government, or they can use a significant portion of that money to take less from you. It’s up to all of us to engage with our elected officials and urge them to make the right choice.
Justin Bogie serves as Senior Director of Fiscal Policy at the Alabama Policy Institute. 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.
