The World Around You

This says it all, thanks so much for all you do Kimble,

Grocery tax bill would modernize Alabama taxes
By Kimble Forrister

In the last two weeks, legislators have spent a lot of time arguing for and
against Rep. John Knight’s plan to lower grocery taxes and cap a lopsided
deduction.

This might be a good time to step back and consider how Alabama’s tax system
became so flawed and outdated that it ranks worst for taxing workers at the
poverty line and ties for worst on taxing groceries.

It wasn’t intentional.

Nobody ever consciously decided to make Alabama and Mississippi the only
states that apply the full sales tax to groceries. Decades ago, quite a few
states taxed groceries. Over the years, reformers in these states mounted
campaigns to lower their states’ reliance on grocery taxes. Only two states
stubbornly refused to update their tax systems.

Similarly, nobody ever sat down and decided Alabama should have the highest
income tax at the poverty line. Instead, we designed a progressive income
tax in 1935 with generous exemptions for the necessities of life, but for 70
years we failed to make adjustments for inflation.

The same goes for the state income tax deduction for federal income tax. It
has been in place for four decades. Nobody intended back in 1965 to give the
majority of the benefit to the top 3 percent of earners. Over the years,
income inequality has grown, and this deduction has grown more lopsided. If
you earn less than $100,000 a year, it lowers your state tax bill by less
than $100. If you’re among the one percent who make more than $400,000 a
year, it cuts your tax bill by $15,000 on average.

It doesn’t make sense to offer a lopsided deduction that lowers taxes by
less than $100 for the vast majority, but 150 times that much for the very
few. Good tax policy offers deductions that are roughly the same size. For
example, the personal exemption on Alabama’s income tax is $1,500 for every
Alabama adult, rich or poor. The homestead exemption exempts the first
$40,000 of value of your house, whether it’s a shack or a mansion.

Because last century’s lawmakers failed to make regular updates, we have
inherited a tax system that’s holding us back. Our education and health
systems can’t keep pace with our neighbors because our tax system is tilted.
It gets too much of its revenue from heavy sales and income taxes on middle-
and low-income workers, while it gives enormous deductions to those with the
largest incomes.

There’s a way to improve the balance of the system: cap the lopsided
deduction and lower the tax on groceries.

Last year Rep. John Knight and Alabama Arise came within one vote of passing
a grocery tax reduction. In an attempt to find one more Senate supporter,
Rep. Knight kept ratcheting his plan closer and closer to the version Gov.
Bob Riley had proposed. But diehard opponents would have none of it. They
said we were trying to raise taxes on “the people I represent” and lower
taxes on everyone else.

This year Knight cut his bill down to two parts: his own plan to remove the
4 percent sales tax on groceries, and Republican Rep. Robert Bentley’s plan
to cap the deduction for federal income taxes paid. With these changes, the
plan trimmed the number who would pay a higher tax bill from 20 percent down
to 5 percent. But the diehard opponents still want none of it.

In fact, Sen. Larry Dixon argues that it’s a trick of “the left” to reduce
the number who pay more as a divide-and-conquer strategy. Ironically, it was
Republican Gov. Bob Riley who proposed capping the deduction last year.
Riley’s plan would have allowed most to keep the deduction, but would have
removed it for those at the top.

There’s one last argument we need to address. Some opponents are challenging
the U.S. Department of Agriculture’s estimate that a family of four spends
$225 a week on groceries. They find it hard to imagine that families really
spend that much on groceries.

The USDA says the “Moderate Cost Food Plan” was $225.10 a week for a family
of four last November. If a legislator and spouse eat all their meals at
home with no children, the USDA says they pay $125.60 a week. You can find
your family on the chart by going to www.cnpp.usda.gov and clicking on “USDA
Food Plans: Cost of Food.”

If you eat out a lot, and you forget to take your lunch to work, your annual
grocery tax savings might work out to less than $100 a person in your
family. Whatever the amount, it will help you make ends meet in a time of
hardship. Put together with the tax savings of 4 million Alabamians, it’s a
$400 million economic stimulus for Main Street Alabama. And it moves a
tilted tax system one step closer to the 21st century.

Kimble Forrister is state coordinator of Alabama Arise, a statewide
coalition of 150 congregations and organizations that promote state policies
to improve the lives of low-income Alabamians.

Kimble Forrister
Arise Citizens’ Policy Project
P. O. Box 1188
Montgomery, AL 36101
(334) 832-9060