Last Update: 11/14/2006

1. Tax reform is a moral issue -- not just a fiscal matter. In Alabama, we tax the poor heavily and the rich lightly. That's not just bad public policy -- it's just wrong.
   • A family of four earning only $4,600 a year must pay state income tax. No other state taxes at such a low level.
   • The state helps guarantee that the rich will get richer as the poor get poorer. That's because Alabama places large taxes on small incomes, and small taxes on large incomes. This is wrong!
   • The poorest fifth of non-elderly, married households pay 11.5% of their income in state and local taxes! The richest 1% pay just 3.6%.
   • Forty-one states assess income tax. In the last 15 years, all but one of them have taken steps to reduce the tax burden on the working poor. The lone holdout is Alabama.

2. The plan is simple: Close off the most expensive tax break for the rich, and use the savings to benefit the poor and middle class.
   • The expensive tax break is the "deduction for federal income tax paid." Alabama taxpayers can deduct their federal income tax payment from their state income tax return. It costs Alabama $450 million, and 32% of that goes to the richest 1% of taxpayers! The poorest fifth of the population get nothing. By getting rid of that tax break, we can nearly double the deductions for a middle-income family.
   • The Arise plan:
     • nearly doubles the personal exemption (from $1,500 per adult to $2,800)
     • gives nearly ten times the deduction for children (from $300 to $2,800)
     • and the standard deduction (for families that don't itemize) will go from a maximum of $4,000 to $7,350 per couple.
   • Instead of having the lowest income tax threshold in the country ($4,600 for a family of four), we will have one of the 10 highest. A family of three will start paying income tax at $18,900 a year. A family of four will start paying at $23,200.
   • About two-thirds of Alabamians who file income taxes will pay less than they do now. For example:
     • A family of four with an income of $42,000 will pay about $422 less.
     • A family of four making $65,000 will also pay less. The amount will vary depending on the family's other deductions and credits.
     • Only the top 1% (those making over $238,000 a year) will pay substantially more.
   • The Arise plan lowers the total state and local tax burden on the poorest fifth of married, non-elderly households, from about 11.5% of their incomes to 9.7%. It increases total state and local taxes on the top 1% of married, non-elderly households from about 3.6% to 4.3% of income.

3. The Arise Plan can win in the Legislature, and at the polls.
   • Governor Don Siegelman has said he will not consider any measure that includes a tax increase, but he is interested in tax fairness. The Arise Plan meets the governor's conditions:
     • It's "revenue-neutral," designed to raise the same amount of money as the current income tax. That means it doesn't raise taxes; instead, it shifts some of the burden.
     • It improves fairness. Alabama's income tax will no longer tax poor families deeper into poverty.
     • It is very likely to win at the polls. It offers a tax cut for a majority of Alabamians, plus the Earned Income Tax Credit, without costing the state any money.

4. The Earned Income Tax Credit is the most effective poverty-fighting program we have today. Conservatives and liberals unite in supporting the EITC, which has been proven to help poor families earn their way out of poverty. The Arise Plan creates an Alabama EITC set at 10% of the federal EITC.
   • The EITC provides an incentive to work, by adding to low wages rather than subtracting from them.
   • Research shows that low-income taxpayers use EITC refunds for such things as a down payment on a home, or a reliable car to get to work.
   • EITC opponents have claimed that the program has a high rate of fraud. But the number of claims going to unqualified applicants has been steadily declining for years. Alabama will benefit from the experience of other states in guarding against fraudulent claims and administrative errors. (Even the low cost of fraudulent or mishandled claims is more than offset by the benefit of helping more taxpayers to keep working, earning, spending, and saving in Alabama.)
   • Of the 41 states with income tax, 10 also provide an Earned Income Tax Credit. That number is growing: The Missouri legislature is considering an EITC proposal, and the Republican governor of New Jersey has already budgeted a new state EITC. (Like the Alabama Arise plan, it's set at 10 percent of the federal EITC.)
5. The Arise Income Tax Fairness plan is only a first step. Some say this plan doesn't go far enough. In the long run, we agree. Comprehensive tax reform will take more time, more effort, and more public involvement. But we have to start somewhere.

   We can improve the way we tax and the way we budget, but we can't do it all at once. The Arise Plan for Income Tax Fairness is an excellent place to start.

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