MONTGOMERY, Ala. — Alabama House Minority Leader Anthony Daniels, D-Huntsville, has filed a bill to permanently extend the state income tax exemption on overtime pay, amassing some bipartisan support, though key lawmakers, including two budget chairs, remain skeptical.
“If we’re really wanting to help families, helping families is giving them back more of the money that they earned so that they can afford the eggs today, and tomorrow,” Daniels told Alabama Daily News Monday.
The bill has amassed 33 cosponsors of both the Democratic and Republican parties, including from House Majority Leader Scott Stadthagen, R-Hartselle, and Republican Reps. Shane Stringer of Citronelle and Craig Lipscomb of Gadsden. A handful of powerful Republican lawmakers, however, remain skeptical, largely due to the House recently advancing a package of tax cut bills last week projected to cost the state $192 million.
Carried by Daniels, the overtime tax cut was established in 2023, and included a provision that would see the tax cut sunset in late June of this year. Originally projected to cost the state about $34 million a year, the tax cut ended up costing an estimated $230.7 million over nine months, a price tag that Rep. Danny Garrett, R-Trussville, who chairs the House education budget committee, has said makes its passage seem unlikely.
“It has created a $300 million hole in the education budget, which we could sustain, but it would prevent us from doing other things,” Garrett previously told ADN.
Garrett’s four-bill package of tax cut bills passed in the House last week included reducing the state sales tax on groceries from 3% to 2%, granting the authority to local municipalities to lower their own sales tax on groceries, double tax exemptions for seniors drawing from retirement, and increase tax-exempt income for lower- and middle-income earners.
While considering himself a supporter of some of the bills in the tax cut package, Daniels said that cutting taxes on overtime pay was by and large the most effective way to help Alabama families.
“When I think about the grocery tax bill, we’re talking about one cent on a dollar, so which is more valuable?” Daniels posed. “Giving 5% of time and a half back to hard-working Alabamians so that they can have more money to spend in the grocery store, or one cent on the dollar?”
Much has been made of the surprise price tag of the tax cut on overtime pay, but Daniels has argued that most of the state’s lost revenue from overtime taxes ends up in state coffers regardless, either through hourly workers spending their savings or through corporate tax receipts.
“It also increases productivity; increasing productivity increases profits, which increases taxes,” he said. “So you’re talking about a cut that yields better returns than what it’s costing, while at the same time, giving families the opportunity to be able to afford to buy groceries.”
On the bill’s strong bipartisan support, Daniels said it was a matter of Republican lawmakers responding to the wishes of their constituents. For instance, the Alabama Policy Institute, a conservative think tank influential in Republican circles, has regularly advocated for the overtime tax cut to be permanently extended.
“(Alabama Policy Institute) is a very strong organization, and they have a lot of people that read their publications and trust them, and so when they poll the overtime piece, it was overwhelming,” Daniels said. “I also have Republicans in the House and the Senate that thank me for dropping the bill, that are not cosponsors, but are saying ‘what can I do to help?’”
Cuts move to Senate
Meanwhile, Garrett’s tax-cut package now moves to the Senate. While it moved rapidly through the House this month, deliberations may be slower in the upper chamber as its members review the bills.
“The House package is fresh to the Senate,” Sen. Arthur Orr, R-Decatur, said on Tuesday. He’s chairman of the Senate education budget committee, the bills’ next legislative stop.
“It hadn’t been discussed previously, with the exception of very high-level conversations regarding the grocery tax. The other components, not at all. So they’ll get a fresh look in the Senate. I would not be surprised to see amendments to those bills.
The size of the cuts warrant discussion, another member of the Senate committee said.
“I think we’re moving way too quickly in the circumstances we’re in,” said. Sen. Greg Albritton, R-Range.
While supporters of the cuts point to health reserves created by conservative budgeting in recent years, Albritton points to increased expenses on the horizon, including a $283 million teacher health care program budget shortfall, and flat revenues in the Education Trust Fund so far this year.
And while cutting taxes is popular, reducing them now and then dealing with a revenue shortfall in 2026 when all lawmakers are up for reelection, would not win them political favor, Albritton said.
Alabama Daily News’ Mary Sell contributed to this report.