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Lawmakers gear up to consider nearly $100 million in tax cuts

MONTGOMERY, Ala. – Alabama lawmakers appear eager to pass some sort of tax cut legislation this session and several proposals have already been filed while more are expected.

Legislative leaders have said they want to look at all their options before making a decision. At least two bills are expected to be debated and voted on in committee this week.

Proposed tax cuts

Two tax bills scheduled to be voted on this week in the House Ways and Means Education Committee are House Bill 115 and 116, which together, would amount to an annual $78.4 million tax cut.

Alabama is one of 42 states to levy a state income tax, with the state imposing a 2% tax on a resident’s first $500 of taxable income, 4% on taxable income between $501 and $3,000, and 5% on all taxable income over $3,000. Excluding tax deductions and other variables, Alabamians’ income generally becomes subject to state income tax after $3,000.

State income tax, along with sales tax, are the major sources of revenue for the state’s Education Trust Fund.

Sponsored by Rep. Danny Garrett, R-Trussville, HB115 would reduce the top state income tax rate of 5% to 4.95% over an incremental period of five years. A fiscal analysis of the bill estimated the tax cut, once fully implemented in 2028, would decrease revenue to the ETF of $54.2 million annually.

Also sponsored by Garrett, HB116 would in turn eliminate the lowest state income tax rate of 2% in its entirety, creating an estimated ETF annual budget shortfall of $24.2 million. Both HB115 and 116 have Senate versions carried by Sen. Arthur Orr, R-Decatur, which received committee passage last month.

Another proposed tax cut sponsored by Garrett is House Bill 117, which would increase the amount of exempt taxable income from retirement programs such as a 401k or IRA from $6,000 to $10,000. Applying only to those 65 and older, the House version of the bill has not yet seen a fiscal report produced, but the identical Senate version – also carried by Orr – estimated an annual loss to the ETF of $13.7 million.

Other tax cut bills filed include House Minority Leader Anthony Daniels House Bill 217 to untax overtime pay. It has been assigned to Garrett’s committee.

And while support for reducing or eliminating the state’s 4% sales tax on groceries appears to be growing, legislation has not yet been filed. Orr is working on a proposal to gradually reduce the tax on some foods Sen. Andrew Jones, R-Centre, and Rep. Patrice McClammy, D-Montgomery, are working on a constitutional amendment that would require approval by voters to nix the grocery tax and replace the revenue by limiting the amount of federal income taxes Alabamians can deduct from the state income tax filings. 

Lt. Gov. Will Ainsworth, who wrote in a statement last week that this year was “the perfect opportunity to repeal the grocery tax.”

“The potential loss of budget revenue, the false claims that replacement taxes must be passed, and the looming threat of economic downturns are just a few of the excuses politicians have used to do nothing and continue walking in place,” Ainsworth wrote. 

“The time for excuses is over. The best news is that we can end the sales tax on groceries without having to shift the burden or raise taxes elsewhere. If anyone claims otherwise, they are simply not shooting straight with you.”

‘It’s a significant tax cut’

Garrett, the chairman of the House Ways and Means Education Committee set to vote on HB115 and 116 on Wednesday, told Alabama Daily News that the bills were designed to help Alabamians on both ends of the income spectrum.

“The top tax rate in Alabama is 5%, and that’s for any income over $6,000, so pretty much all Alabamians are paying that top rate of 5%; we’re reducing that to 4.95%,” Garrett said. 

“So that’s just eliminating the lowest tax rate and making a cut from the top rate, a tax benefit for everybody in Alabama, but particularly the people on the very lowest end.”

Garrett said that he wasn’t overly concerned with the budget shortfalls created by the tax cuts as he argued that Alabamians, when saving money, generally end up putting it back into the economy through increased spending.

“We’re heavily dependent upon income and sales tax, so the idea that somebody would save that money, there’s a high likelihood they would just spend that money; if they spend it, depending on what they buy, they could be paying a sales tax,” Garrett said. 

“It’s a significant tax cut for those individuals, but it doesn’t jeopardize the future budget. We expect that with the population growth, the budget growth would basically be able to accommodate this, we think the money will be reinvested in the economy.”

A number of lawmakers who also sit on the House Ways and Means Education Committee told Alabama Daily News that they were in full support of the tax cuts, and held similar beliefs that the budget shortfalls would be negated through population growth and increased spending.

Rep. Terri Collins, R-Decatur, said that she believed the tax cuts could provide significant relief to Alabama’s poorest residents, and that overall, she was strongly in favor of supporting them.

“I do have some questions, but overall, for the concept I really like it because we’re at these unprecedented levels of funding revenue, (and) people are looking at ways that we can reduce taxes for the people,” Collins told Alabama Daily News.

“I like that we phase it in. It’s a relatively expensive hit to the ETF, especially on that top income tax bracket, but because it’s incrementally done over five years, it slowly puts that negative effect in place and I think that’s a measured way to do it.”

Rep. Cynthia Almond, R-Tuscaloosa, another committee member, told Alabama Daily News that while she was in support of the tax cuts, the budget shortfalls were something “that concerns (her)” and that she looked forward to hearing more about them during the committee meeting on Wednesday.

“Any time we can reduce the income tax burden on our citizens, that’s certainly a worthwhile thing to consider,” Almond said. 

“From reading the bills, it appears to be a very thoughtful way to do it; it’s phased in and incremental, so I think it would be helpful to our citizens. Certainly (the budget shortfalls are) something that concerns me, and I feel like it will also concern him which is why I have full confidence that he’s probably thought through all this. That is definitely something I will want to learn more about once we get the full explanation in committee.”

Committee member Rep. Joe Lovvorn, R-Auburn, told Alabama Daily News that he not only supported HB115 and 116, but the retirement tax cut as well. Regarding the budget shortfall created by the tax cuts, Lovvorn mirrored Garret’s position that the savings from the tax cuts would ultimately make their way back into state coffers by way of increased spending.

“I think the way our tax structure is set up is we will continue to have a revolving income into the ETF that will help stabilize that,” Lovvorn said. 

“We understand that you’re looking at about $80 million that’s coming out of those two bills if those are passed into law, but that’s money that’s going to turn right back into our economy. It’s an investment back into the state, it’s an incentive to help our taxpayers out, an incentive to help people stay here, and also an incentive for people that may want to come to Alabama.”


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