MONTGOMERY — Despite gaining support from at least five House Republicans, House Minority Leader Anthony Daniels' (D-Huntsville) efforts to permanently extend the state's overtime tax cut are looking all but dead in the water, according to House Speaker Nathaniel Ledbetter (R-Rainsville).
Lawmakers passed a law in 2023 ending the state's taxing of money earned via overtime pay. The bill, also sponsored by Daniels, passed the legislature but contained a sunset provision, meaning it would require a legislative continuation or expire. The initial sunset provision expired the tax cut in 2027 and capped the total exemption amount at $25 million. However, Gov. Kay Ivey issued an executive amendment removing the cap but changing the sunset to June 2025.
The total fiscal impact on the state's Education Trust Fund (ETF) was initially reported to be $34 million. However, while the exact impact is not available, a report by the Alabama Department of Revenue said the effect could be as much as $230 million.
While Daniels and others have continued to push for a continuation of the tax cut, House leadership instead prioritized a package by State Rep. Danny Garrett (R-Trussville), which passed the House last month.
Leadership boasted that the tax cut package would equal roughly $250 million by reducing the state's grocery tax by 1%, removing local governments' restrictions on cutting grocery tax, doubling tax exemptions for certain retirement plan withdrawals and increasing the range of optional standard income tax deductions.
Despite House leadership's obvious prioritization of Garrett's package, Daniels filed House Bill 467 (HB467), which would permanently remove the sunset provision and authorize the Revenue Department and the Alabama Commission on the Evaluation of Services to conduct an economic impact study of the exemption.
The bill has five Republican cosponsors, including State Reps. Arnold Mooney (R-Indian Springs), Ernie Yarbrough (R-Trinity), Craig Lipscomb (R-Gadsden) and Shane Stringer (R-Citronelle), and House Majority Leader Scott Stadthagen (R-Hartselle).
According to Daniels, Garrett's package underdelivers to Alabamians working in fields that could boost the state's economy.
"This bill does more for working-class people than anything that we passed," Daniels told 1819 News. "Can we put some additional guardrails on it? Maybe. But I don't think people are sitting around trying to figure out how to defraud the government. I don't see that."
For Daniels, the tax cut package would have minimal effect on Alabama families, specifically on the grocery tax. He also believes that industries that offer overtime will begin to draw in more workers if they aren't taxed for their overtime.
"If you eliminate one cent, you're talking about one dollar off of every hundred," Daniels continued. "I can get that on a coupon. I can just start cutting coupons. So, I think we've got to focus on what is going to give people the largest impact. And what can we pass right now that is going to directly help people? It's the overtime tax because the productivity is up, the individual tax receipts are up, corporate tax receipts are up. If you look at the data from even the Department of Labor, you'll see that people are seeking jobs more in areas that offer overtime. So, it actually is a part of increasing the workforce participation rate, too. Because if you're disproportionately going into certain sectors that offer overtime, what does that tell you? There's an incentive."
The bill currently has five Republican cosponsors. However, Daniels says that number was due to efforts to file the bill quickly, and he has been approached by many more members who support it. He claimed the increase in bipartisan support stems from lawmakers hearing from their constituents.
For Ledbetter, the projected economic hit brought to the state coffers would be too much to justify continuing the cut.
"I'm a fiscal conservative," Ledbetter told reporters. "When it was $30 million, I certainly was in favor of it, and I thought it was something we could do. I think the reason you sunset bills is to have an opportunity to look at them again and see if it's possible to make them work or not work. And we went from $30 million to, in the last [fiscal] note I seen was $320 million. That's a big difference. I'm not saying we can't come back at some point in time and try to do something with that."
He continued, "This quadrennium, if those tax bills pass, we have reduced taxpayers' taxes to the tune of $1.6 billion in this quadrennium alone with over 15 different tax cuts. So, to say that this body hadn't done their part would be an [over]statement. More than anybody has ever done in state history."
Daniels, on the other hand, believes the estimated economic impact of the overtime tax cut is massively overblown.
"For every person that has quoted the cost of the overtime bill, it is very speculative," Daniels claimed. "They'll say, 'It can cost up to this or that.' Well, yeah. Anything can cost up to something, right? But throwing out that number misleads the public to say that this is what it's going to cost when, in reality, there's no receipts or data to tell you that it actually cost that amount.
"It's not even close. It's totally false. But think about what it actually brought back in. When you look at tax receipts from January of last year to now, you will see that the corporate tax receipts and individual tax receipts far exceed the cost of this overtime bill, even the cost that they're alleging."
Daniels also expressed frustration with House leadership for not including him in discussions on the overtime tax and the Garrett package, which eventually received leadership's support.
"There were conversations and meetings that took place that I never knew anything about about," Daniels concluded. "There was a series of meetings. Nobody ever told me about it. So, I felt that they were disingenuous about this.
"Before dropping that tax package, I was never afforded the opportunity to really work on something meaningful. And so, I went from an extension of a year or two, to now, anything less than permanent, I'm not going support."
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