Alabama has two intertwined structural problems that, together, keep us from meeting our people’s most basic needs. One problem is that our state’s tax system is upside down. Rich people get huge tax breaks, forcing people with low and moderate incomes to make up the difference. The other problem is that this upside-down system doesn’t raise enough money to support schools and other vital services adequately.
Two major drivers of Alabama’s regressive tax system are a sales tax on groceries that hurts working families and a skewed income tax break that overwhelmingly benefits wealthy people. Alabama Arise has a longstanding plan to address both problems: Eliminate the state grocery tax and end the state deduction for federal income taxes (FIT).
Untaxing groceries without replacing the revenue would take $480 million annually away from education, hurting our children and our future. But by ending the FIT deduction, Alabama could bring in more than $800 million a year in new revenue.
That’s more than enough to replace lost revenue from the grocery tax. It also would allow our state to invest hundreds of millions of dollars in K-12 and higher education.
Ending the grocery tax and the FIT deduction would make our state’s tax system stronger and fairer. About four in five Alabama households would get a tax cut overall. And the net tax increase for those who would pay more generally would be modest. Even for the top 1%, the average increase would be less than 1 percentage point of income.
Arise’s tax reform plan would boost education funding and help millions of Alabamians make ends meet. This would increase opportunity and shared prosperity across our state.
This blog post originally appeared as an article in Arise’s September 2019 newsletter.