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The largest tax cut in state history was passed by the legislature this week, a bill that would cut the state personal income tax over the next four years.
As one thankful citizen said, “As the price of everyday items from gas to groceries skyrockets, it is great to see our state’s leaders taking practical steps to help folks cope with the cost of living. Letting [people] keep more of their own money means that they will have more to spend on themselves, their families and in their own communities.”
Great news, huh?
Unfortunately, it didn’t happen in Montgomery.
This was the news out of Mississippi, where that state legislature passed a tax cut that is on its way to the desk of Gov. Tate Reeves (R), who is expected to sign it.
Meanwhile, Alabama’s governor and legislature can’t seem to part with a penny of state revenue, despite a record surplus.
Heck, even the IRS will send you a refund if you pay too much in taxes.
But when the Alabama legislature collects more than it needs? They just find new ways to keep taking it in, with larger and larger budgets and pay raises and rewards.
1819 News columnist Justin Bogie pointed out this week that the House took nearly all of the education budget’s $1.3 billion revenue surplus – extra money taxed from us citizens – and put it back into the 2022 budget, and “a large portion of those projects could be completed with federal stimulus dollars already received by the state.”
Oh, and that $160 million to $200 million “cut” that our legislators crow about? Better than nothing, but think about it: a $200 million tax cut out of a $1.5 billion revenue surplus? Aren’t the people of Alabama owed more than that?
Meanwhile, across the state line, the thinking in Mississippi is that reducing the personal income tax will make Mississippi a more attractive state in which to work and set up a business. Our neighbor to the west – the one about whom we used to say “Thank God for Mississippi” – now has the nation’s fifth-lowest top rate (for states with an income tax). The plan would reduce the highest rate to 4% in stages from 5% by 2026, and eliminate the current 4% rate that applies to taxable income between $5,000 and $10,000.
“We have about $1.5 billion in excess revenue right now,” said Mississippi House Speaker Philip Gunn last week, "and we’re on pace to have about $2.5 billion.” Mississippi trailed the nation with a median household income of $45,000 in 2020, and a low cost of living means even a modest tax cut goes a long way to help family budgets.
Alabama’s tax rate is 2% to 5%, and according to tax-rates.org, Alabama is listed as having the highest maximum marginal tax bracket in the United States.
But while the argument in Montgomery has been defensive, with “conservative” Republican legislators explaining why it would be a mistake to reduce tax revenue (including even a suspension of the gas tax), the discussion in Jackson, Miss., has focused on how to slowly phase out the state income tax altogether.
Gunn has reportedly secured House backing for a proposal to phase out the tax, and Gov. Reeves followed with a faster plan to end it completely by 2030. The more modest cut that passed this week is a compromise to persuade a skeptical state Senate.
Get this – the Jackson Clarion-Ledger reports that Reeves is expected to reluctantly sign it into law – reluctant not because he is unsure about taking that kind of revenue hit, but because he has been “adamant that lawmakers eliminate, not just cut, the state personal income tax".
Imagine that. A governor who believes the legislature didn’t go far enough in efforts to cut taxes and let citizens keep more of their money rather than turn it over to the state.
According to the Clarion-Ledger, the legislation contains language that the plan will be examined by 2026 with an eye toward personal income tax elimination.
There have been tax reforms going on all around us. Louisiana amended its state constitution last year through a ballot measure that caps the income-tax rate at 4.75%, and the top rate in 2022 will be 4.25%. Arkansas passed a cut last year that by 2025 will reduce the top rate to 4.9% from 5.9%. Tennessee and Florida have no state income tax.
But in Montgomery?
You’d think competition would be a powerful incentive. But the example of our neighbors doesn’t seem to matter to the folks on Goat Hill.
Ray Melick is Editor-in-Chief of 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.