Alabama Taxpayers Need Facts on the Tax Increase

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A pro-tax increase publication mailed to voters indicates, “After this plan takes effect, 85 percent of Alabamians will pay less in combined property and income taxes than they pay now.” Think about this for a moment. They are saying that 15 percent of the taxpayers in our state will not only foot the entire bill for the $1.2 billion tax increase, they will also have to make up for tax cuts to the other 85 percent. Frankly, I don’t think that is possible. More to the point, I don’t think it is true in regard to the proposed tax increase.

The authors of the publication appear to have included the combined impact of President Bush’s federal income tax cuts as part of their calculation. If they did, this is a gross misrepresentation of the impact of the state tax increase. Moreover, the impact of the tax increase appears to be decidedly more punitive for those who currently itemize their deductions which is critical to accurately projecting the real cost to families of the tax increase.


The loss of the deduction for federal taxes paid or accrued during the year is punitive for a significant number of taxpayers, even those of the middle class. While it is true that many states do not allow the state deduction of federal taxes, it is also true that other states do not have sales taxes on food. Seven states, including Florida and Texas do not have a state income tax and Texas and Tennessee have no state property tax. The important question is not what other states have, but rather what Alabama needs to be solvent, efficient and effective in providing services demanded by taxpayers.

Another interesting aspect of the impact of the tax increase proposal that shows up in an analysis by the Public Affairs Research Council of Alabama (PARCA), a strong supporter of the tax increase, is that it creates a state “marriage penalty” by giving a single parent with one child a bigger tax break than a married couple with one child. This holds true at every income level. In other words, not only would the low-income two-parent family be punished as a result of losing their ability to deduct other taxes, they will also be penalized for being married.

Another questionable claim made in support comes from a radio ad claiming that a family of four with an income of $40,000 will see a tax cut of $600. But the PARCA analysis published July 20th in the Birmingham News indicates a cut of only $228. In fact, PARCA has dramatically reduced their estimates of the benefit of the tax increase from their first analysis as published on June 25th in the Birmingham News in which they predicted a cut of $455, almost double their most recent projection.

If taxpayers want to determine how the income tax increase will effect them they should go to the Balch and Bingham personal income tax overview on the PARCA Web site and download the new state tax form instructions, and then compare that with their 2002 state tax return.

In terms of the impact on property taxes, particularly on homes, a recent analysis of the tax increase proposal by Dent, Baker & Company, a Birmingham accounting firm, indicates that those with homes valued at $60,000 and above will be losers if the tax increase is approved. Another estimate indicates that home property taxes will go up for all homes valued at slightly over $52,000. In addition, low-income families will bear a disproportionate share of the proposed sales tax on personal services such as the labor for repairing a car or appliance or doing plumbing or electrical work. Since most low-income families cannot afford the higher priced, more reliable automobiles and appliances they are much more likely to require such services.

Finally, the same publication that claims 85 percent will pay less in income and property taxes also makes the claim that if this massive tax increase passes it will create tens of thousands of new jobs for Alabama and will not have a negative impact on jobs or disposable income of Alabama families.

I find this particularly interesting in view of the fact that virtually every one of those who allowed their names to be used on the publication have been strong supporters of tax cuts at the federal level as a means of stimulating the economy. For them to now say that a massive tax increase will not have any negative impact on Alabama’s economy is simply illogical.

The vast majority of Alabamians are smart enough to know that raising our taxes by $1.2 billion dollars will have a significant negative impact on Alabama’s economy. If they need proof, a report issued in December 2001 by the Joint Economic Committee of the United States Congress estimated that it costs the economy $1.40 for every $1 of new taxes raised, which would translate into a loss to the Alabama economy of almost $1.7 billion.

The people of Alabama deserve to know the truth about how the tax increase will impact them. Most of them have already figured it out anyway.

”’Gary Palmer is president of the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.”’