ALABAMA: Tax System Still Regressive, Knight Still Trying to Make it Less So

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Alabama’s tax system has long been among the least fair in the nation.  Indeed, the latest edition of ITEP’s flagship publication, Who Pays?, indicates that it is the tenth most regressive tax system among the fifty states, as it forces low- and middle-income residents to pay effective tax rates that are roughly twice that faced by the very wealthy.

The sources of such inequities are readily apparent.  Alabama is one of just a handful of states that continue to tax groceries, an exceedingly regressive approach to generating revenue.  It is also one of just a few states that offer an unlimited deduction, as part of its state income tax, for the federal income taxes that Alabamians pay.  Since upper-income individuals and families tend to pay more in federal income taxes, they, by definition, reap the largest windfalls from this deduction, thus subverting the progressive intent of the federal income tax.  Repealing both these policies would go a long way towards achieving greater tax fairness in Alabama.

For some time now, Representative John Knight has championed legislation that would do just that – and he appears ready to put forward such a measure in the fast-approaching 2010 legislative session as well.  In addition to removing groceries from the sales tax base and eliminating the deduction for federal income taxes paid, the Knight proposal could also raise the level of income at which families begin to pay income taxes in the state, a change that would also help to make Alabama’s tax system more fair.  To learn more about the proposal and about tax and budget matters in Alabama, visit Alabama Arise Citizens’ Policy Project.

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