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Press-Register - "House Considers Major Tax Overhaul"

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Location: Montgomery, AL

HOUSE CONSIDERS MAJOR TAX OVERHAUL

April 14, 2008

Press-Register - "House Considers Major Tax Overhaul"

House of Representatives will take up an ambitious constitutional amendment Tuesday that state Department of Revenue says could reduce the income tax burden for nearly two-thirds of Alabama taxpayers, and cut sales taxes for everyone.

Supporters of the amendment -- which would eliminate state sales taxes on food, raise the minimum levels of income tax and remove deductions of federal taxes on state returns -- say they're close to getting the two-thirds majority of 63 votes needed to prevail in the House, and feel confident they can win in the Senate.

"The front desk is saying we owe them lunch with all the calls they're having to take," said Kimble Forrister, state coordinator of Alabama Arise, which lobbies on tax and poverty issues and has been working to pass the bill. "It's not over yet. We still have a few days to get calls in, but we're enthusiastic."

The possible loss of the federal income tax deduction has drawn criticism from Republicans. State Rep. Jay Love, R-Montgomery, who is pursuing a bill that would raise the income tax threshold to $15,000 without canceling the federal deduction, said the amendment sponsored by state Rep. John Knight would not mean a real decrease in taxes.

"It's not truly a tax cut, because you eliminate one group of taxes over here, but you're raising taxes over there," he said.

Knight, D-Montgomery, disagreed. "It's the right thing to do," he said Thursday. "At a time when gas prices are increasing and the economy is in a downturn, I can't think of a better time to give a tax break to the families of the state."

His amendment would:

Eliminate the 4 percent state sales tax on groceries. Local sales taxes would not be affected. In Mobile and Baldwin counties, the cut would amount to a savings of $208 a year for families that buy $100 of groceries each week.

Raise personal exemptions for single tax filers from $1,500 to $2,200, and for those filing jointly from $3,000 to $4,400. The deduction for children, now ranging from $300 to $1,000 depending on income level, would be set at $2,000 per child. These changes would raise Alabama's threshold for taxing income from $12,500 to $19,900.

Do away with the state deduction of federal taxes paid by Alabama filers.

The bill aims to move Alabama's regressive tax system, which critics say heavily taxes the incomes of the poor, to a more progressive structure.

The Department of Revenue estimates that 63 percent of taxpayers would see their income taxes drop, while all would benefit from removing the state sales taxes on food. Those making $50,000 or less in adjusted gross income -- the majority of state taxpayers -- would see their income tax bills fall $30 to $315 a year under Knight's amendment.

Those with an adjusted gross income of $60,000 or more would see state income taxes increase by at least $207 a year because of the change on claiming the federal deduction, according to the revenue agency.

Taxpayers reporting adjusted gross income between $50,000 and $60,000 would pay $48 more. Those making $60,000 to $100,000 would pay $207 more, and those making $100,000 to $200,000 would pay $694 more

House Minority Leader Mike Hubbard, R-Auburn, said the GOP caucus has not taken a position on the amendment, but that he expects fewer than "half a dozen" of the House's 43 Republican members to vote for it.

Hubbard said he would vote against the amendment, because it would shift the tax burden and create pressure for local communities to also repeal their sales tax on food.

"A lot of cities and counties, it would put a serious hurting on them to do that financially," he said.

Speaker of the House Seth Hammett, D-Andalusia, who supports the bill, said he expects Tuesday's vote to generally follow party lines, with a few defections on both sides.

"We think it will be fairly close," he said. "It appears the preliminary vote (allowing the bill to proceed) will count most."

Alabama and Mississippi are the only states that have not abolished or reduced sales taxes on groceries, according to the Center for Budget and Policy Priorities, a Washington, D.C.-based group that studies income and poverty issues.

Alabama, Louisiana and Iowa are the only three states to allow all taxpayers to deduct all federal personal income taxes paid, while six other states allow limited deductions of federal income taxes, according to the Center for Tax Justice, a Washington, D.C., based advocacy group.

Knight has introduced similar proposals in previous years, but not gotten them out of committee for floor votes. If this year's version passes the House, it would still need Senate approval before being submitted to voters in the fall.

Forrister said the amendment would create more equitable tax policy, particularly in the elimination of sales taxes on food.

"It's a tax on the necessities of life," he said. "Good tax policy offers homestead exemptions for basic housing costs, grocery tax exemptions for the cost of food, and medicine exemptions. We try not to tax the essentials of life."


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