How the state grocery tax hurts struggling Alabamians

No matter how much or how little money we have, we all have to eat to live. But the share of earnings that people must devote to securing basic survival is not the same for everyone. Food takes a much bigger bite out of the household budget for low-income families than for richer ones. And that means sales taxes on groceries hit harder at lower incomes. Most states either exempt groceries from state sales taxes entirely or have other ways to help offset grocery taxes for low-income people.

Alabama is one of only three states with no tax break on groceries. (Mississippi and South Dakota are the others.) Our state sales tax rate is 4 percent, but local taxes have driven the total rate to 10 percent or even 11 percent in many areas of the state.

Sales taxes are especially regressive in Alabama, because they apply to many kinds of spending that are not optional.

A gallon of milk plus sales tax costs the same for a family at the poverty line as for a millionaire. But that sales tax makes up a much larger share of income – and has a greater effect on the household’s standard of living – for a low-income family than for a richer one. That means Alabama’s state grocery tax disproportionately affects households struggling to make ends meet.

Ways to untax groceries

Other states offer a range of options for how to reduce or end grocery taxes. Full exemption would ensure an immediate tax break on groceries for all state residents. (Food bought with benefits under the Supplemental Nutrition Assistance Program (SNAP) is not taxed, but those benefits cover only a portion of food costs for most participants.) The state also could tax groceries at a reduced rate or create a targeted Earned Income Tax Credit (EITC) to help offset grocery taxes for residents with low incomes.

No matter how Alabama seeks to untax groceries, the state should replace the revenue. Most state sales tax revenues in Alabama support K-12 education. Removing the grocery tax without replacing that money could cost schools more than $300 million a year. Alabama could recoup those funds by limiting or ending its state income tax deduction for federal income tax payments, a tax break that overwhelmingly benefits the richest households. The state also could expand sales taxes on more services and luxury goods.

It’s time for Alabama to join 47 other states in giving a tax break on groceries. It would make our state’s upside-down tax system more progressive. And it would be an important step toward boosting economic security for all Alabamians.

Better policy choices on taxes, transit can improve Alabamians’ health

Deeper and smarter investments in education, housing, infrastructure and other vital services can eliminate barriers to good health for low-income residents and communities of color, according to a new report from the Center on Budget and Policy Priorities (CBPP), a nonpartisan policy research organization based in Washington, D.C.

Alabama can take many important policy steps to remove barriers to better health. These include:

  • Expand Medicaid to cover more than 340,000 adults with low incomes.
  • Provide state funding for public transportation to help seniors, people with disabilities, and people who can’t afford a car get to work or the doctor’s office and meet other basic needs.
  • End the state grocery tax to make it easier for families to make ends meet.
  • Modernize the state’s upside-down tax system to ensure Alabama raises enough money to invest in vital services and doesn’t tax struggling people deeper into poverty.

“Good health and good quality of life go hand in hand,” Alabama Arise executive director Robyn Hyden said. “By investing in Medicaid and public transportation and making our tax system more progressive, Alabama can build a stronger, healthier, more prosperous future for everyone.”

Income and wealth inequality, on top of centuries of structural racism, have taken their toll on health for black Alabamians. Black residents of our state die three years earlier than white residents, on average. Black babies in Alabama are twice as likely as white babies to be born with low birth weight, and they are twice as likely to die before their first birthdays.

Social, economic and environmental factors account for half of an individual’s health, the CBPP report says. That finding underscores the importance of investments in the common good.

“If Alabama really wants to improve the health of its residents, policymakers must prioritize education, housing, the environment, infrastructure, health programs and other public investments in their budgets,” CBPP senior policy analyst Jennifer Sullivan said.

The less you make, the more you pay: Alabama’s taxes remain upside down

Low-income Alabamians pay twice as much in state and local taxes as a share of their income compared to the state’s wealthiest residents, according to a study released Wednesday, Oct. 17, 2018, by the Institute on Taxation and Economic Policy (ITEP), a nonprofit research organization based in Washington, D.C. The study, Who Pays?, analyzes major state and local taxes in all 50 states, including personal and corporate income taxes, property taxes, sales and other excise taxes.

Alabama has a regressive tax structure – meaning the lower your income, the higher your tax rate – and Alabama’s taxes are more regressive than those in most other states, ITEP finds. The Alabamians who earn the least – less than $18,600 a year – pay 9.9 percent of their income in state and local taxes on average. By contrast, the top 1 percent in Alabama – those who make $448,000 a year or more – pay an average of just 5 percent of their income in state and local taxes.

“For decades, big corporations and wealthy households have benefited the most from economic growth,” Alabama Arise executive director Robyn Hyden said. “But Alabama taxes struggling families deeper into poverty while lavishing tax breaks onto people who can afford to pay more. It’s time to modernize Alabama’s taxes by untaxing groceries and requiring wealthy people and corporations to pay a greater share of the cost of education, health care and other public services that make life better for everyone.”

The biggest driver of Alabama’s upside-down tax system is its heavy reliance on sales taxes to raise revenue for public services. That story is similar in many other states, but sales taxes in Alabama are particularly regressive because it is one of only three states with no tax break on groceries.

Alabama is also one of only three states to allow taxpayers to deduct every dollar of federal income tax payments on their state income taxes – a tax break that disproportionately benefits rich households. Recent increases in court fees and other user fees, which fall hardest on families who struggle to make ends meet, also have added to the regressive nature of Alabama taxes.

Such an upside-down tax structure limits Alabama’s ability to invest in services that support economic growth and help all residents stay healthy and productive, according to ITEP. If states fail to address systemic causes of growing income inequality, they will have more difficulty raising the revenue they need over time. The more income that goes to wealthy people (and the lower a state’s overall tax rate on the wealthy), the more slowly a state’s revenue grows over time, ITEP finds.

“Rising income inequality is unconscionable, and it is certainly a problem that local, state and federal lawmakers should address,” ITEP deputy director Meg Wiehe said. “Regressive state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State lawmakers have control over how their tax systems are structured. They can and should enact more equitable tax policies that raise adequate revenue in a fair, sustainable way.”

Medicaid expansion, end to grocery tax highlight Alabama Arise’s 2019 priorities

Medicaid expansion and legislation to end the state sales tax on groceries are among the top goals on Alabama Arise’s 2019 legislative agenda. More than 200 Arise members picked the organization’s issue priorities at its annual meeting Saturday, Sept. 8, 2018, in Montgomery. The seven issues chosen were:

  • Tax reform, including untaxing groceries and closing corporate income tax loopholes.
  • Adequate funding for vital services like education, health care and child care, including approval of new tax revenue to protect and expand Medicaid.
  • State funding for the newly created Public Transportation Trust Fund.
  • Consumer protections to limit high-interest payday loans and auto title loans in Alabama.
  • Legislation to establish automatic universal voter registration in Alabama.
  • Reforms to Alabama’s criminal justice debt policies, including changes related to cash bail and civil asset forfeiture.
  • Reforms to Alabama’s death penalty system, including a moratorium on executions.

“Public policy barriers block the path to real opportunity and justice for far too many Alabamians,” Alabama Arise executive director Robyn Hyden said. “We’re excited to unveil our 2019 blueprint to build a more just, inclusive state and make it easier for all families to make ends meet.”

Alabama’s failure to expand Medicaid to cover adults with low wages has trapped about 300,000 people in a coverage gap, making too much to qualify for Medicaid but too little to receive subsidies for Marketplace coverage under the Affordable Care Act. Expanding Medicaid would save hundreds of lives, create thousands of jobs and pump hundreds of millions of dollars a year into Alabama’s economy. Expansion also would help keep rural hospitals and clinics open across the state.

The state grocery tax is another harmful policy choice that works against Alabamians’ efforts to get ahead. Alabama is one of only three states with no sales tax break on groceries. (Mississippi and South Dakota are the others.) The grocery tax essentially acts as a tax on survival, adding hundreds of dollars a year to the cost of a basic necessity of life. The tax also is a key driver of Alabama’s upside-down tax system, which on average forces families with low and moderate incomes to pay twice as much of what they make in state and local taxes as the richest Alabamians do.

4 reasons why a new state tax break for private school tuition would hurt public education in Alabama

Update: Arise members stopped this plan in its tracks! After lawmakers received hundreds of emails and phone calls from our supporters opposing this bill, the Senate amended HB 251 on March 14 to remove the language that would have created a tax break for private school tuition. The House agreed to the change on March 16 and sent the revised bill to Gov. Kay Ivey, who signed it into law on March 22.

Alabama allows a state income tax deduction for contributions to college savings accounts known as 529 plans. But HB 251 and SB 189 would let Alabamians use 529s to get a state tax break on tuition at K-12 private schools as well. Proponents say the move would do little harm to Education Trust Fund (ETF) revenues. But there are four reasons to believe the change would cost the ETF millions of dollars a year:

1. This bill would change the nature of 529s in Alabama. 529 plans originally were designed as long-term savings plans for college costs. But if this proposed change is enacted, Alabama’s 529s could end up looking much more like a short-term tax break for private K-12 school tuition instead. By simply putting up to $10,000 for tuition payments in a 529 and then immediately withdrawing it, a couple could save up to 5 percent in state income taxes on that amount.

2. It’s reasonable to expect that participation rates in 529s for K-12 private school tuition would be much higher than those for college. Many parents can’t afford to save for their children’s college, so they hope for scholarships and loans to help cover the cost. But most parents of Alabama’s 83,000 private school students obviously can afford to pay tuition – because they already do.

3. Private schools and tax professionals likely would promote 529s in a whole new way.Colleges generally don’t promote 529s. Instead, they promote themselves as the college to choose. But many K-12 private schools likely would promote 529s for their students, as 529s essentially would offer parents a tax break of up to 5 percent on tuition. Many tax advisers also would urge parents with children in private school to use 529s as a tax-savings device.

4. The ETF’s revenue loss could add up quickly. Alabama allows couples to deduct 529 contributions of up to $10,000 per year. At a 5 percent income tax rate, each maximum contribution would cost the ETF $500 a year. And the potential revenue loss for the ETF could extend even further: Alabama allows grandparents to deduct contributions to their grandchildren’s 529s as well.

Read the Institute on Taxation and Economic Policy’s report on how states can prevent revenue losses in the wake of the 2017 changes to federal law on 529 plans.

Push to block Alabama tax break for private school tuition succeeds; Ivey signs bill to create hardship driver’s licenses

Arise members had two big reasons to celebrate Thursday, as Gov. Kay Ivey signed a pair of bills that finalize policy wins related to our organization’s 2018 issue priorities. One law will halt (at least for now) an effort to create a new state tax break for private school tuition in Alabama, while the other will help ease the transportation burden that can result from unpaid court fines and fees.

Arise members win push to stop state tax break for private school tuition

Ivey’s signing of HB 251 on Thursday marked the final step in Arise members’ sucdcessful push to save millions of dollars per year for public schools across Alabama. The bill, sponsored by Rep. Ken Johnson, R-Moulton – originally would have allowed people to use education savings accounts known as 529 plans to receive a state income tax break on money used for K-12 private school tuition. But by the time the bill reached Ivey’s desk, those provisions were nowhere to be seen.

Arise members deserve an enormous share of the credit for blocking that tax break. That proposal would have turned 529 plans – originally designed to encourage long-term college savings – into vehicles to subsidize private schools at the expense of public education. The change would have cost the Education Trust Fund millions of dollars a year.

The tax break easily passed the House and appeared to be sailing toward legislative passage – until hundreds of Arise members and other advocates sounded the alarm, flooding the Senate with emails and phone calls in opposition to the plan. That pressure worked: Last week, the Senate amended HB 251 to remove the language that would have created the tax break for private school tuition. The House quickly agreed and sent the revised legislation to Ivey for her signature.

Hardship driver’s licenses could ease transportation burden for thousands

Another new law enacted Thursday stands to lift employment barriers and expand transportation access for thousands of Alabamians. SB 55, sponsored by Sen. Clyde Chambliss, R-Prattville, will allow the state to issue hardship driver’s licenses to thousands of people, including many who have had their licenses suspended or revoked for convictions unrelated to driving.

Under SB 55, those Alabamians could receive hardship driver’s licenses – allowing them to drive on a limited basis – if they can demonstrate to the satisfaction of the Alabama Law Enforcement Agency that they are not a risk to public safety and cannot obtain other reasonable transportation. People convicted of drunken driving or reckless driving would be ineligible for hardship licenses.

The new law could give thousands of Alabamians a legal way to drive to work, go to doctor’s appointments and fulfill other essential tasks of everyday life. And it represents an important breakthrough in Arise’s work to ease the burden of criminal justice debt on low-income families.

By Chris Sanders, communications director. Posted March 22, 2018.

Alabama Legislature rejects tax break for private school tuition

Update: Gov. Kay Ivey signed HB 251 into law on March 22 – without the language that would have cost public schools millions of dollars a year. Thank you to all the Arise members and everyone else who helped protect education funding in Alabama!

Great news, y’all: Arise members just helped save millions of dollars a year for Alabama’s public schools! A few weeks ago, we sounded the alarm about HB 251, sponsored by Rep. Ken Johnson, R-Moulton. At that time, the bill included language that would have allowed Alabamians to use education savings accounts known as 529 plans to receive a state income tax break on money used for K-12 private school tuition.

Hundreds of Arise members sprang into action. They flooded the Senate with emails and phone calls opposing this misguided plan to turn 529 plans – originally designed to encourage long-term college savings – into vehicles to subsidize private schools at the expense of public education.

This proposal had been speeding toward enactment – but Arise members helped stop it in its tracks. This week, the Senate amended HB 251 to remove the provisions that would have created a tax break for private school tuition. The House agreed to that change Thursday and sent the bill to Gov. Kay Ivey – without the language that would have cost the Education Trust Fund millions of dollars a year.

This win for public schools across our state couldn’t have happened without our members. It was proof once again that when everyday folks speak up together for what’s right, we can get results. Thank you so much to all of you who helped defeat this proposal, and to all of you who continue to support Arise’s work to build a better Alabama for all.

By Kimble Forrister, executive director. Posted March 16, 2018. Updated March 22, 2018.

Children’s health care takes a back seat as Congress rushes to cut taxes for corporations, wealthy people

Arise Citizens’ Policy Project executive director Kimble Forrister issued the following statement Wednesday, Dec. 20, 2017, in response to Congress’ passage of a tax bill that disproportionately benefits rich people and corporations:

“Congress’ misplaced priorities were on clear display today. Nearly 84,000 Alabama children are about to lose their ALL Kids coverage because lawmakers allowed federal funding for it to expire months ago. But instead of solving that problem, Congress hurried to create a new one by increasing the deficit to give huge tax cuts to big corporations and wealthy people.

“This tax plan is a massive giveaway to the rich at the expense of everyday Americans. Over time, it will raise taxes on tens of millions of families at low and middle incomes. It will increase health insurance premiums for millions of people and leave millions more uninsured in exchange for permanent tax cuts for big corporations. And it will drive up the federal deficit, setting the stage for calls to cut Medicare, Medicaid, education, food assistance and other vital services next year.

“Struggling families shouldn’t have to pay for tax cuts for rich people. And tens of thousands of Alabama families can’t afford for Congress to wait any longer to renew federal funding for the Children’s Health Insurance Program. Lawmakers across Alabama and across the country should commit now to renew CHIP funding before a single child loses coverage and to reject budget cuts that would make it harder for families to make ends meet.”

Congress’ tax plan is still a bad deal for everyday Alabamians

Arise Citizens’ Policy Project policy director Jim Carnes issued the following statement Friday, Dec. 15, 2017, in response to the release of Congress’ revised tax bill:

“At its core, Congress’ tax plan is a massive giveaway to huge corporations and wealthy people at the expense of working families. This bill is bad for everyday Alabamians, and no amount of tinkering at the edges can change that.

“This bill still will raise taxes on tens of millions of Americans at low and middle incomes, while handing enormous tax breaks to the top 1 percent. It still will leave millions more Americans with no health insurance in exchange for permanent tax cuts for big corporations. And it still will drive up the federal deficit, which congressional leaders have already indicated they will use to justify calls for cutting Medicare, Medicaid, Social Security and other vital services next year.

“This tax plan is an ill-conceived rush job, and it’s a raw deal for families across Alabama and across the country. Congress should reject this bill and focus on closing tax loopholes and investing in education, health care, transportation and other services that help struggling families get ahead.”

U.S. Senate tax plan is a windfall for the wealthy at the expense of everyday families

Arise Citizens’ Policy Project policy director Jim Carnes issued the following statement Saturday, Dec. 2, 2017, in response to passage of the U.S. Senate tax bill:

“The U.S. Senate tax plan is a huge giveaway to wealthy households and big corporations, and working families across Alabama and across the country will pay the price for it. Tens of millions of Americans at low and middle incomes will face tax increases, while the top 1 percent will get enormous tax breaks that would make them even richer.

“The Senate plan will leave 13 million more Americans without health insurance in exchange for even larger corporate tax cuts. It also will fuel a soaring federal deficit, which many in Congress likely will try to use as an excuse to cut Medicare, Medicaid, education, housing and other essential services. Those cuts would make it even tougher for everyday Alabamians to make ends meet.

“It’s no wonder Congress shoved this bill through without hearings or extended debate: It’s a raw deal for American families. Small changes can’t fix that problem. Congress should reject this plan and focus instead on closing tax loopholes and investing in education, health care, transportation and other vital services that help struggling families get ahead.”