Earlier this month, Mississippi Gov. Tate Reeves (R) announced he would pursue further income tax rate cuts in the upcoming legislative session, with the plan being to entirely eliminate all personal income taxes over the next four years.
As a reminder, in 2022, Mississippi’s government enacted legislation to eliminate the state’s 4% income tax bracket and will lower the 5% bracket by one point over the next three years. Despite passing the largest income tax cut in state history in 2022, Reeves feels that state government should press forward in its efforts to take less taxes from Mississippians.
Isn’t this a refreshing mentality?
Reeves said that “the fiscal and the financial environment” is right for Mississippi to eliminate the state’s income tax permanently. The plan would reduce state revenues by an estimated $525 million annually once fully implemented. Mississippi finished fiscal year 2022 with over $1.5 billion in surplus revenues, about 25% of the state’s general fund budget.
Does this sound familiar to you?
Alabama’s state government wrapped up 2021 with a $1.5 billion revenue surplus. In 2022, it collected even more taxes from Alabamians, finishing the year with a $2 billion revenue surplus.
Our state government finds itself in a similar situation to Mississippi and many other states around the nation. Alabama’s government is sitting on more revenue than at any point in state history, with an additional $1 billion in federal stimulus funds yet to be allocated.
The difference is what Alabama is doing with the excess tax dollars it took from you.
As of October, 14 states had enacted income tax rate cuts in 2022. In total, 33 states, both blue and red, have enacted some form of tax relief this year. Georgia has forgone an estimated $800 million in gas tax revenues to provide relief to citizens. Missouri enacted $760 million in income tax cuts this year. As blue as it gets, Massachusetts is expected to refund nearly $3 billion to citizens by the end of the year.
What has Alabama’s state government done to take less taxes from citizens? The bare minimum, given the state’s historic surpluses over the past two years. In 2022 the state passed $160 million in targeted tax cuts, with over half of those savings coming from not taxing enhanced federal COVID-19 benefits. When gas prices peaked earlier this year, Gov. Kay Ivey (R) balked at the idea of suspending the state gas tax. Nothing has been done to combat near-record inflation.
The only proposal being discussed right now to provide relief to Alabamians is a one-time tax rebate. Preliminary estimates suggest that, at best, married couples would get $400 of their money back. That is less than a third of the extra taxes paid to Alabama’s government in 2022. The state would spend the rest.
Though it is not something we often say, in this case, Alabama should strive to be more like our neighbors in Mississippi. In 2022 its government enacted half a billion dollars in permanent tax cuts. Not satisfied, Gov. Reeves will look to more than double that total by the end of 2023.
While in recent years Alabama Republicans have remained adamant that big government is the solution to our problems, it is not too late to change that mentality and help all Alabamians. None of the state’s latest $2 billion revenue surplus has been spent. The remaining $1 billion in American Recovery Plan Act stimulus dollars has not been spent.
Cutting income taxes are not the only route to providing permanent relief to citizens. Eliminating the state 4% sales tax on groceries would save Alabamians over $500 million per year. Repealing the additional $.10 gas tax approved in 2019 would cut taxes by nearly $350 million per year. Cutting corporate income taxes could ease the pain felt by businesses over the past two years and attract new industries to the state.
No Alabama Republican campaigned on a platform of bigger government and higher taxes during the 2022 election cycle. Yet their actions (or inaction) to date indicate that is what many believe in. They must put the needs of citizens above the wants of government. Providing the bare minimum in tax relief is not good enough. Like Mississippi, our state lawmakers must have a bolder vision and continue to fight for that vision until the goal is accomplished.
Alabama’s government has more than enough money available to provide generational permanent tax relief to citizens. It is a simple choice for lawmakers. They can stop the record growth of government that the state experienced over the past four years and cut taxes, or they can continue to expand the bureaucracy until the money finally runs out.
Which would you choose?
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.