MONTGOMERY, Ala. — Alabama House Democrats unveiled a trio of bills Wednesday during a press conference at the State House in Montgomery that would enact broad tax cuts on groceries, income and overtime pay.
Specifically, the three bills, which have yet to be filed, would completely eliminate the state sales tax on groceries, reduce the state income tax from 5% to 4%, and permanently extend the state’s recent tax cut on overtime pay.
Alabama currently imposes a 3% sales tax on groceries since lawmakers approved a 1% tax cut in 2023. The tax cut stipulated that the state sales tax on groceries could be reduced further in subsequent years should revenue for the state Education Trust Fund see a minimum growth of 3.5% when compared to the previous year. That threshold was not met in 2024 and isn’t expected to be met this year.
Speaking on the proposal to eliminate all state sales tax on groceries, Rep. Laura Hall, D-Huntsville, said an immediate tax cut was necessary as prices at grocery stores continue to remain elevated, and in some cases, rise.
“As egg prices and other basic goods at the grocery store continue to soar with no end in sight, Alabama, today, is still taxing groceries, and hard-working families are unnecessarily hurting,” Hall said.
Another bill would make the state’s tax exemption for overtime pay, established in 2023 from a bill sponsored by House Minority Leader Anthony Daniels, D-Huntsville, permanent. The bill, explained Rep. Curtis Travis, D-Tuscaloosa, would be filed by Daniels soon.
“This is a practical and now-proven step we can take to fulfill our promise to create an economic environment that creates opportunities and benefits for hard-working Alabamian taxpayers,” Travis said.
Originally projected to cost the state about $34 million a year, the tax exemption on overtime pay ended up costing an estimated $230.7 million in the first nine months of 2024, according to the Alabama Department of Revenue. Set to sunset in June, Daniels has made the case for making the tax cut permanent, and has seen support from House Speaker Nathaniel Ledbetter, R-Rainsville, who earlier this year told Alabama Daily News that he anticipated continuing the tax cut in some form.
Also unveiled Wednesday was a bill that would reduce the state income tax from 5% to 4%, which, as explained by Rep. Adline Clarke, D-Mobile, would help Alabamians amid rising inflation.
“Doing (a cut on state income tax), coupled with permanently eliminating state tax on overtime pay, we will put more money in the pockets of hourly workers and help them combat the rising cost of living,” Clarke said. “That’s a tax cut that will be fair and meaningful for hourly workers who keep our economy strong.”
When asked by ADN how House Democrats planned to address the fiscal impact of their tax cut proposals on the state’s budgets, Clarke said that she was still hopeful for gambling legislation to be brought back up in the Legislature, legislation that could generate considerable revenue for the state. She also advocated for the repeal of the CHOOSE Act, the state’s education savings account program that diverts some tax dollars earmarked for public school toward private and home schooling, and noted that a significant share of the state’s lost tax revenue on overtime tax has circulated back into the economy through other means
No comprehensive study has been conducted on the level to which lost tax revenue from overtime pay has made its way back into state coffers through other channels, though Daniels has said he would like such a study to be conducted.
The proposed tax cuts would primarily impact the state’s ETF budget. Through February, revenues to the ETF were down -.75%. Rep. Danny Garrett, R-Trussville, who chairs the House Ways & Means ETF Committee, told ADN Wednesday evening that, based on what is known about the House Democrats’ tax cut proposals so far, that they were unrealistic.
“This comes out to a $1.7 billion hit to the state’s budgets, and their solution to offset that is repealing the CHOOSE Act and passing a gaming bill?” Garrett told ADN in a written message. “It’s in no way, shape or form a realistic proposal.”
Rep. Jamie Kiel, R-Russellbille, who vice chairs the committee, told ADN he would need to review the proposed bills before commenting.
Rep. Rex Reynolds, R-Hazel Green, who chairs the House Ways and Means General Fund Committee, told ADN that the proposals would be “a heavy lift.”