A new study from the Public Affairs Research Council of Alabama (PARCA) shows that Alabama still collects less tax money per person than most other states in the U.S.
If you don’t count the state lotto, Alabama is only behind Tennessee in terms of how much it collects per person. When the money from the state lottery is added in, Tennessee goes ahead of Alabama.
Ala. has the fifth-smallest tax base in the U.S., according to the PARCA study, which is one reason for this. But because the state has low tax rates, it gets very little tax money. This is mostly because Alabama has the lowest property tax payments per person in the country.
Low property taxes are good for homes and people who own farmland and forests, but they make it hard for local governments and schools to pay for the services they need. Property taxes bring in more money and are a more stable source of income across the country. In Alabama, state and local governments have to use options that are less stable. As a result of the Alabama Constitution, the state doesn’t like property taxes, which makes things unfair and inadequate.
Sales tax is what the state does instead, and it has the highest sales tax rates in the country. Alabama has one of the highest sales tax rates in the country, but many services are not taxed, and the state has less wealth. This means that the sales tax brings in about average amounts of money for the U.S.
Only three states charge the full amount of state and local sales tax on food, and Alabama is one of them. State and local taxes take a bigger chunk of the income of people with lower incomes because they spend more of their money on things that are covered by the sales tax.
Alabama officials are currently thinking about a bill that would get rid of the statewide grocery tax. Democrats have been pushing for this for a long time, but Republicans have recently joined them. The question is how the state will get the money back, which is thought to be around $600 million.
Sen. Merika Coleman, D-Birmingham, has released the details of her plan to get rid of the grocery tax. To pay for it, she wants to get rid of the state’s Federal Income Tax reduction.
Only Alabama lets taxpayers fully deduct federal income taxes when figuring out their state taxes. This is a tax break that helps people with higher incomes more than it helps people with lower incomes. Some states that had this rule, like Iowa and Louisiana, have taken it away.
Alabama Arise thought that getting rid of the rule would save the state about $900 million a year. They also said that the only people who would lose money would be the top 10 percent of earners after taking into account the money saved on grocery taxes.
Alabama’s income tax is pretty flat. The highest rate, 5%, is given to people whose taxable income is more than $3,000. In Alabama, poor people have to pay income taxes. No other state lowers the amount of income that needs to be paid in taxes than Alabama.
In most states, the income tax is used to smooth out the unfair effects of other taxes. For example, low-income households can get credits to help them pay their sales taxes. It’s not in Alabama.