In 1996, the Institute on Taxation and Economic Policy released a report entitled Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.1 One of the findings of the study was that in 1995, Alabama had a regressive tax structure— that middle- and low-income Alabamians paid a higher share of income in Alabama state and local taxes than did the better-off. In fact, the study ranked Alabama as one of the ten most regressive tax systems in America: the poorest twenty percent of Alabamians paid 11.6% of their income in Alabama taxes, middle-income Alabamians paid 9.1%, while the wealthiest 1 percent of taxpayers paid only 4.8 percent of their income in state and local taxes. One of the principal reasons for this ranking is the lack of progressivity in Alabama’s income tax.
The following analysis describes several characteristics of Alabama’s income tax which limit its progressivity, and analyzes the effects of a series of possible tax law changes that would reduce the state tax burden on middle- and low-income Alabamians.