BIRMINGHAM, Ala. – A new series of GOP-backed tax cut proposals totaling $192 million received their first committee votes on Thursday.
Alabama House Education Budget Chairman Danny Garrett, R-Trussville, introduced Wednesday four bills aimed at cutting taxes, including reducing the state’s grocery tax, giving local governments more control over their own grocery tax rates, expanding exemptions for retirees and increasing tax deductions for low- and middle-income earners.
The bills would replace the 2023 law that took the state income tax off of overtime earnings. That exemption dies in June unless extended by the Legislature, something Democrats are proposing.
The House Education Budget committee, which Garrett chairs, gave all four bills a favorable report Thursday afternoon with little discussion and the package now heads to the House floor.
“While I am proud that Alabama’s taxes are consistently among the lowest in the nation, there are still commonsense, conservative measures we can take to put more money back into the pockets of hardworking Alabamians,” Garrett said in a news release. “Including the previous cut in the grocery tax, these tax cuts will save Alabama families approximately $314.6 million per year,” he added.
House Bill 386 cuts the state’s grocery tax from 3% to 2%, beginning Sept. 1. Alabama lowered tax on food from 4% to 3% in 2023 and set a trigger for an additional one-percentage-point reduction if revenue growth reached a certain level. However, that growth has not been reached. A fiscal note shows the proposed cut would save Alabama taxpayers $122 million.
House Bill 387 addresses local control, removing restrictions state lawmakers placed on local governments with respect to taxing food. The bill gives locals the authority to lower sales tax on groceries by resolution or ordinance.
“We’re basically removing (the barrier) and saying ‘locals, if you want to reduce your tax by any amount, whenever you want to do it, just do it,” Garrett told Alabama Public Television’s Capitol Journal.
House Bill 388 doubles the state’s income tax exemption from $6,000 to $12,000 for individuals 65 years old or older who withdraw funds from a defined contribution retirement plan such as a 401(k) or Individual Retirement Account. If passed, the change would take effect on Jan. 1, 2026 at an estimated cost of $45 million.
House Bill 389 focuses on tax relief for lower-income Alabamians. It would raise the standard deduction from $2,500 to $3,000 for individuals, and expand dependency exemptions beginning with the 2026 tax year.
Garrett said the bill “would increase the threshold to achieve the standard deduction and the dependency exemptions for taxpayers who make $60,000 or less,” he said. “That will be a tax reduction primarily focused on that group.”
That $315 million in tax savings – the proposed cuts plus a previous 1% reduction in tax on groceries – is similar to the $300 million cost of the overtime exemption. That law has cost the state far more than anticipated.
“When we filed that bill…we had an 18-month sunset on it,” Garrett said. “The fiscal note was $30 million – that was the expectation. It turns out it’s going to be about $300 million and that’s a surprise to everyone.” He acknowledged that if lawmakers had known the true cost, they likely would not have passed it.
Garrett said the focus now is on broader tax relief.
“What we’re doing is reducing taxes,” he said. “Taxes that will hit more Alabamians and will be people that are not impacted by the overtime tax (exemption).”
Garrett’s bills, several of which have dozens of Republican co-sponsors, follows a trio of proposals unveiled by House Democrats Wednesday. Though not yet filed, the three bills would completely eliminate the state sales tax on groceries, reduce the state income tax from 5% to 4%, and permanently extend the overtime tax cut.
“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,” Rep. Laura Hall, D-Huntsville, said.
House Speaker Nathaniel Ledbetter, R-Rainsville, praised Garrett’s tax cut package in a news release Thursday.
“The Legislature has passed over a dozen tax cuts since 2022, saving Alabama families thousands of dollars each year,” Ledbetter said. “We’ve done this while paying off the state’s debt, fully funding reserve accounts, issuing $393 million in tax rebates and cutting government waste. Alabama’s financial footing has never been stronger and I’m proud that our responsible budgeting has allowed us to provide even more relief to our citizens.”
Lawmakers will be out next week for the first of two week-long breaks this month.