Alabama lawmakers advanced on Wednesday a modest income tax cut, one of several tax break proposals as legislators weigh how to use a record budget surplus.
The House Ways and Means Education Committee approved the two bills that collectively provide $82 million in income tax cuts by adjusting the lowest and highest tax brackets. The bills now move to the full House of Representatives.
One bill would eliminate the current 2% tax that people pay on the first $500 of taxable income for single people and $1,000 for married couples who file their taxes together. The other bill would gradually reduce the 5% state income tax rate — paid on taxable income over $3,000 for single people and $6,000 for taxpayers who are married and file their taxes together — to 4.95% in 2027.
“These are modest tax cuts that will not jeopardize the budget, but they are steps," Committee Chair Danny Garrett, who sponsored the legislation, said. “We're building this. We've done these over the last three or four years. So, when you add up the cumulative effect of those, it's pretty substantial.”
With a record budget surplus, lawmakers are eyeing possible tax cuts this year, including possibly removing the 4% sales tax on food. Alabama is one of the few states that fully tax groceries. Lawmakers have discussed removing the sales tax on food for years but have been hindered by the cost to the state education budget. Removing the tax on groceries would cost the education budget more than $600 million annually.
"It will truly make a difference for our families," Democratic Rep. Curtis Travis, of Tuscaloosa, said.
Travis spoke during a press conference about tax cuts proposed by House Democrats, including removing the sales tax on groceries and eliminating the state income tax on overtime pay.
Sen. Arthur Orr, who chairs the Senate Finance and Taxation Education budget-writing committee, has proposed to phase out the state sales tax on some foods, such as milk, eggs, vegetables, fruit, whole-grain breads and baby formula. The bill would remove the state sales tax on food items that are covered by the federal Women, Infants and Children nutrition program for low-income women and young children.
Garrett said using the program list would focus the tax break on “healthier type food items” while limiting the financial cost to the state education budget. He estimated that it would cost the state $200 million annually.
"This is what the education budget could sustain at this point in time, particularly given the unknown future financially for the country and for the state," Orr said.
