CBS 42: Ala. among ‘Terrible 10’ most regressive tax states
media mentionBIRMINGHAM, Ala. (WIAT) — Low and middle-income Alabamians pay more than twice as much of their incomes in state and local taxes as the state’s richest households pay, according to a report released by the Institute on Taxation and Economic Policy, a nonpartisan research organization based in Washington, D.C.
Alabama’s upside-down tax system placed the state on ITEP’s “Terrible Ten” list of states with the most regressive tax systems.
The bottom fifth of Alabama earners, who make less than $16,000 annually, pay an average of 10.2 percent of their incomes in state and local income, property, sales and excise taxes, the report finds. The middle fifth of taxpayers pay 9.6 percent, but Alabama’s top 1 percent of income earners, who make an average of $900,400 annually, pay just 3.8 percent of their incomes in state and local taxes after writing off part of those payments on their federal income taxes. The effective overall tax rate for the lowest-income Alabamians is 2.7 times higher than for the top 1 percent. For the middle fifth, it is nearly 2.5 times higher.
“We hear repeatedly that Alabama is a low-tax state, but the truth is our taxes aren’t low for most people,” ACPP executive director Kimble Forrister said. “A handful of people at the very top of the income scale pay rock-bottom effective tax rates, and the rest of us pay much higher taxes to make up the difference.”
Sales and excise taxes are the biggest driver of Alabama’s upside-down tax system. The bottom 20 percent of earners, who must spend most of what they make on basic necessities that are subject to sales taxes, pay seven times as much of their income in those taxes as the top 1 percent. Alabama’s sales taxes are especially regressive because the state is one of only three that fully tax groceries with no rebate or credit. (Kansas and Mississippi are the others.) Alabama’s relatively flat property and income taxes do little to offset the regressive effects of its high sales taxes. Almost two-thirds of Alabama families pay at the top income tax rate, and the state’s unusual deduction for federal income taxes provides its biggest tax cuts to the richest households.
“Two measures could remove Alabama from the ‘Terrible Ten’ list: ending the state grocery tax and removing the lopsided deduction for federal income taxes,” Forrister said. “These steps would make Alabama’s tax system more balanced and sustainable for everyone.”