“The grocery tax is a tax on a basic necessity of life. It’s a tax on survival. And it’s time for Alabama to bring this tax to an end.”
Arise communications director Chris Sanders discusses a recent bill by Rep. Chris England that would be a major step forward on untaxing groceries. The video also details Arise’s plan for how Alabama could end the state grocery tax and expand Medicaid without cutting a dime from the education budget.
Alabama’s federal income tax (FIT) deduction provides a huge tax break for high-income individuals – but at what cost? $719 million to be exact.
The FIT deduction is one big reason Alabama’s tax system is upside down. For those who earn $30,000 a year, the deduction saves them about $27 on average. But for the top 1% of taxpayers, the FIT break is worth an average of more than $11,000. The higher the income, the more the FIT deduction is worth for those who can most afford to pay more to fund education, health care and other vital needs.
Only two other states offer a full FIT deduction like Alabama does. (Three other states offer a partial deduction.) Ending the FIT deduction would bring in an additional $719 million a year, the Institute on Taxation and Economic Policy estimates. That would be enough to allow Alabama to remove the state sales tax on groceries. For most people in our state, the net result would be a tax cut.
This proposal would make it easier for everyday Alabamians to make ends meet, but its benefits wouldn’t end there. Alabama also could use the new revenue to expand Medicaid, ensure full funding for the Children’s Health Insurance Program (CHIP) in 2021 and make critical investments in education and other areas. CHIP supports health coverage for more than 170,000 children through Medicaid and ALL Kids.
Alabama’s constitution dedicates income tax revenue to education, and the FIT deduction is written into the document as well. So this plan would require the Legislature and the public to approve a constitutional amendment. But ending the FIT deduction would be a good way for Alabama to begin prioritizing public investments that benefit everyone over tax breaks that primarily benefit a select few.
Now that the gas tax is a reality, the Alabama Legislature appears to be in a hurry to finish up essential business – and maybe even adjourn a little early. The House on Tuesday passed a General Fund (GF) budget that differed little from Gov. Kay Ivey’s recommendations.
With Alabama finally out of the worst of the recession and revenues beginning to flow again, many legislators seem to be feeling a bit like Santa Claus. But the real story is what’s not under the GF’s tree.
The House’s GF budget, which awaits Senate action, would squeeze out increases for nearly every state agency, most of which have been living through tight times for the last decade. The state’s badly cash-strapped court system would receive nearly $40 million more, hopefully reducing its dependence on fines and fees. The Department of Corrections, facing court challenges over treatment for inmates with cognitive disabilities, would get an additional $41 million. That money would allow the department to hire an additional 500 prison guards.
Helping agencies would get increases, too. Mental health would receive an additional $9 million, as would the Department of Human Resources (DHR). The small but vital Department of Senior Services would get an additional $1 million.
Even state employees, who haven’t seen a pay increase in years, would get a 2% cost of living increase. And retired state employees would receive a one-time bonus based on the number of years served.
The head-scratcher budget request came from Medicaid. For years now, Medicaid’s funding needs have challenged previous bare-bones GF budgets. Now, during a good revenue year, Medicaid Commissioner Stephanie Azar actually requested $52 million less. Azar said the agency can carry over a considerable sum from this year to maintain current services in 2020.
The 2020 GF budget does indeed look pretty good at first glance. But the House plan is conspicuous for what was not included.
Perhaps most notably, the budget doesn’t fund Medicaid expansion to cover more than 300,000 Alabama adults with low incomes. The net state cost would be $164 million in the first year and about $25 million a year thereafter. The $52 million reduction in Medicaid’s budget would have made a nice down payment on expansion.
While the Department of Corrections can hire another 500 prison guards, the real need is closer to 2,000 new guards, according to a federal court order. And the budget does not include money for the new prison construction that Ivey has urged.
Lawmakers transferred ALL Kids to the education budget for 2020 to help balance the GF budget. But House GF budget committee chairman Rep. Steve Clouse, R-Ozark, said ALL Kids will move back to the GF in 2021. That move would add to the strain that the underfunded GF budget regularly faces. To draw down available federal matching money, the Children’s Health Insurance Program (CHIP) will need $98 million more from the state in 2021 than it receives today. CHIP provides health coverage for more than 173,000 Alabama children through both ALL Kids and Medicaid.
Alabama is, quite simply, in need of new revenue. And Alabama Arise has a plan to raise that revenue while giving most residents an overall tax cut.
Alabama is one of only three states that allow taxpayers to deduct all of their federal income tax (FIT) payments from their state income taxes. This tax loophole makes little (if any) difference for families with low and moderate incomes. But it saves millionaires a whopping average of $11,327 a year in state income taxes. If Alabama ended its FIT deduction, the state would bring in an additional $719 million a year.
That new money would allow Alabama to expand Medicaid and end the state grocery tax (two long-time Arise priorities). It also would ensure full CHIP funding in 2021 and leave additional money to meet other critical needs. (Because the state constitution earmarks income tax revenue for education, some of those moves would require an amendment.)
The proposed 2020 GF budget is only flush when compared with years when the state was truly in dire straits. It’s time for our lawmakers to find the political courage to address Alabama’s needs and raise the revenue required to meet them. Ending the state’s FIT deduction would be a good first step.
“While the General Fund budget looks really good for what it is, what it is is not enough.” Arise policy analyst Carol Gundlach breaks down what’s missing from the General Fund budget that the Alabama House passed April 9.
Lawmakers may have been on spring break this week, but we still have plenty to discuss in our second video update of the 2019 legislative session.
Watch Arise organizing director Pres Harris discuss upcoming community forums on Medicaid expansion, as well as reminders on action you can take in anticipation of the Legislature reconvening on April 2.
We had a problem Tuesday – and we were glad to have it. So many people came to Arise Legislative Day that we couldn’t fit everyone in the State House’s largest committee room! Nearly 300 Arise supporters came to Montgomery to tell their lawmakers that it’s time to expand Medicaid. We appreciate everyone who showed their support for this investment in a healthier Alabama.
Click above to watch Arise executive director Robyn Hyden talk about our successful Legislative Day, as well as the Senate’s vote for a bill to make Alabama’s justice system more equitable. We’re excited to build on this momentum when the Legislature returns from spring break on April 2.
Alabama’s budget is an expression of our values. Medicaid expansion means healthier families, thriving communities and a stronger economy. Policymakers have a range of options for making this bold investment in a brighter future. Now is the time to choose.
► $719 million in new revenue per year
► Only two other states offer a full FIT deduction
► This money would allow Alabama to achieve multiple goals:
— Expand Medicaid (cost: $168 million in first year, $25 million per year thereafter)*
— Remove the state sales tax on groceries (cost: approximately $400 million per year)
— Secure long-term funding for ALL Kids (cost: $38.4 million for 2020, approximately $90 million for 2021)*
► $261 million in new revenue per year*
► Only one other state offers a full FICA deduction
► $180 million in new revenue in 2020
► Make large landowners pay their fair share of property tax
► Tax sugar-sweetened beverages and vaping-related products
► Close corporate tax loopholes – for example, enact combined reporting*
* Would require transfer from Education Trust Fund to General Fund
This week brought a first in recent memory at the Alabama Legislature: a session within a session. The regular session began Tuesday, but lawmakers have put it on hold until March 19 to make way for a special session on the state gas tax.
At Gov. Kay Ivey’s call, legislators will consider a proposed 10-cent gas tax increase, to be phased in over three years. (The current tax is 18 cents per gallon.) Ivey’s plan aims to strengthen Alabama’s roads, bridges and port, which has become a mantra for state leaders in the run-up to the 2019 session.
Arise hasn’t taken a position on the gas tax proposal, but we have a lot to say about infrastructure. We’re calling on lawmakers to claim a larger vision of infrastructure as Alabama begins its third century of statehood.
Rural hospitals, for example, are key infrastructure but weren’t mentioned in the governor’s State of the State address Tuesday night. Seven rural hospitals have closed since 2011, including one in Georgiana that will close Friday. Another overlooked sector is public transportation, which receives no state funding in Alabama.
There’s a good chance we’ll see Arise issues emerge in the gas tax debate. For example, the Montgomery Advertiser on Wednesday cited a potential push for Medicaid expansion to win gas tax votes from Democratic members. Some lawmakers also have expressed interest in reducing the grocery tax to offset the effects of the gas tax hike. Wouldn’t it be amazing if a plan to rebuild roads and bridges became the first step toward helping struggling Alabama families get health coverage and make ends meet?
Ivey called a special session to remove a procedural hurdle for the gas tax bill. To pass in the regular session, any bills other than the Education Trust Fund and General Fund budgets must first win a three-fifths majority in both chambers in a vote called the budget isolation resolution (BIR). But in a special session, any bill included in the governor’s “call” can pass with a simple majority.
The Legislature can meet for up to 12 legislative days across 30 calendar days during a special session. But because the regular session started first, each day of the special session also will count against the 105 calendar days available for the regular session. Lawmakers can meet for up to 30 legislative days during the regular session.
— $6.7 billion in direct federal spending
— $4.6 billion in indirect economic activity
— Existing Medicaid groups – $87.1 million
— Mental health & substance abuse – $121.6 million
— Corrections – $46.8 million
— Public health – $60.6 million
Medicaid expansion would help more than 340,000 Alabamians get health coverage, stabilize our rural hospitals and jump-start our economy – all for a dime on the dollar. It’s a bargain Alabama can’t afford to pass up.
(Sources: U.S. Census Bureau; Alabama Hospital Association; David J. Becker, “Medicaid Expansion in Alabama: Revisiting the Economic Case for Expansion,” January 2019; Manatt, “Alabama Medicaid Expansion: Summary of Estimated Costs and Savings, SFYs 2020-2023,” February 2019.)
What kind of future do we want for Alabama? It’s a question worth reflecting on as our state enters its third century this year. Are we all right with limiting power and prosperity to a select few? Or would we rather build a state where everyone has a voice and where people of all races, genders and incomes have a real chance to get ahead?
Alabama Arise believes in justice and opportunity for all, and our policy priorities flow from that vision. It’s why we support expanding Medicaid for Alabamians who can’t afford coverage. It’s why we want to rebalance an upside-down tax system that taxes struggling families deeper into poverty. And it’s why we urge stronger investments in education, housing, public transportation and other services that improve quality of life and promote economic opportunity.
We expect lots of infrastructure talk at the Legislature this year. The regular session starts Tuesday, but lawmakers may move quickly into a special session on the gas tax. Gov. Kay Ivey has asked legislators to increase the state’s 18-cent gas tax by 10 cents over three years. That money would fund road and bridge maintenance and other infrastructure improvements.
Many of Alabama’s deteriorating roads are overdue for repair. But the definition of “public infrastructure” goes far beyond tar and gravel. Education, health care and public transportation also help lay the foundation for shared prosperity. This session could bring chances to strengthen those investments – and to make the tax system that funds them more progressive.
One key breakthrough could be on a longtime Arise priority: ending the state grocery tax. We came heartbreakingly close in 2008, when a bill to untax groceries passed the House and fell one vote short in the Senate. But Arise members never gave up the advocacy fight. Now legislators face renewed pressure to end or cut the state’s 4 percent sales tax on groceries. (Some conservative lawmakers are urging a grocery tax reduction to accompany a gas tax increase.) Alabama is one of only three states with no tax break on groceries. It’s a highly regressive tax on a basic necessity, hitting hardest on people who struggle to make ends meet.
Pressure also is building for Alabama to expand Medicaid to cover more than 340,000 adults with low incomes. Medicaid expansion would save hundreds of lives annually and create a healthier, more productive workforce. It also would help save rural hospitals, support thousands of jobs and pump hundreds of millions of dollars into the economy.
Our work for a brighter, more inclusive future won’t end there. We’ll keep pushing for stronger consumer protections against high-cost payday loans. We’ll make the case for the state to fund public transportation and remove barriers to voter registration. And we’ll continue seeking an end to injustices in Alabama’s civil asset forfeiture and death penalty systems. Visit our website and follow us on Facebook and Twitter for updates on these issues throughout the year.
