Birmingham News: Alabama’s tax system is unfair and immoral, but lawmakers have yet to ease the burden on most families
media mentionOnce upon a time six years ago, the Legislature, prodded by a governor and shamed by a tax study, actually took a baby step toward tax fairness.
Lawmakers raised the nation’s lowest income tax threshold — the point at which people begin paying state income tax — from an embarrassingly low $4,600 a year to $12,600 a year. At the time, no other state’s limit was below $10,000, as the tax study noted.
But even this fairy tale didn’t have a completely happy ending. Since then, every other state that Alabama jumped in front of, except Montana, has raised its threshold. So Alabama has sunk to second from the bottom, just $400 ahead of Montana as of 2010, according to a Center on Budget and Policy Priorities report last year. Eventually (and it may already have happened), Montana will pass Alabama because its threshold increases with inflation.
We know this year there will be no tax-fairness prodding from a governor, because Gov. Robert Bentley would sooner push for President Barack Obama’s re-election in November than propose a tax increase. Bentley, who voted for Rick Santorum in Tuesday’s Republican presidential primary because he is “the most conservative candidate,” has repeated his “no-new-taxes” vow ad nauseam, even as state budgets implode.
If we have to rely on legislative shame, is there any to be found? Because if there is, how many lawmakers would allow:
> Alabama to remain one of just two states that collect the full state sales tax on groceries?
> Poor and middle-income families to continue paying a far greater share of their incomes in state and local taxes than Alabama’s wealthiest families do?
Over the past decade, the answer to those questions has been: too many lawmakers. Because for at least that long, the Legislature has failed to approve a bill by state Rep. John Knight, D-Montgomery, that would get rid of the state sales tax on groceries and medicine. Knight again has introduced his bill, and on Thursday, leaders of Alabama Arise asked the Legislature to pass it and allow voters to decide whether to end the state sales tax on food and over-the-counter drugs.
Knight’s bill would make up the lost sales tax revenue — about $326 million — by changing the part of the Alabama Constitution that allows people to deduct from their taxable state income the federal income taxes they pay. Doing that would raise about $485 million a year, adding $159 million a year to the Education Trust Fund, which has shrunk by more than $1 billion since the pre-recession 2008 fiscal year.
What Knight proposes is not unusual tax policy. Every other state with a sales tax but Thank God for Mississippi either doesn’t charge one on food, taxes food at a lower rate or offers an income tax credit to poorer families to help make up for the tax on food. And only Alabama, Iowa and Louisiana grant the full federal income tax deduction on state income taxes.
Because Knight’s bill would end the deduction for federal income taxes paid, some of the tax burden would shift toward the wealthiest Alabamians, where it belongs. This isn’t about redistributing income from the rich to the poor; this is about making top earners pay more of their fair share and helping not just the “least of these,” but most Alabama families.
Look at the numbers, courtesy of the Institute on Taxation and Economic Policy: Alabama families in the top 1 percent of income (at least $384,000 a year; average income $1.2 million) pay 4 percent of their incomes in state and local taxes. Those families in the lowest 20 percent of income (less than $16,000 a year; average income $10,400) pay 10.2 percent of their incomes in state and local taxes. Even families in the top 60 percent to 80 percent of income ($46,000 to $78,000 a year) pay more than twice the percentage of income in taxes than the top 1 percent.
Those numbers are the most recent available — somewhat old, since they’re from 2007, but at least they reflect the increased income tax threshold of 2006. If anything, the disparity may be worse today, since local sales taxes in many cities have risen, and those taxes hit lower-income families the hardest.
Regardless, it is clear from the numbers that Alabama’s tax system is upside down and unjust.
Former Gov. Bob Riley, when he pushed to raise the income tax threshold in 2006, referred to Alabama’s tax system as “immoral.” Six years later, it remains so. Bentley and lawmakers, unless they have no shame, should want to make it more moral and just.