Study on Alabama’s tax system: The less you make, the bigger share you pay

Low- and middle-income Alabamians pay more than twice as much in taxes as a share of their income compared to the state’s wealthiest residents, according to a study released Wednesday, Jan. 14, 2015, by the Institute on Taxation and Economic Policy (ITEP), a nonprofit research organization based in Washington, D.C. The study, Who Pays?, analyzes tax systems in all 50 states.

Every state’s tax system is regressive, meaning the lower one’s income, the higher one’s tax rate. Alabama’s tax system is the nation’s 12th most regressive, ITEP finds. The Alabamians who earn the least – less than $17,000 a year – pay 10 percent of their income in state and local taxes. By contrast, the top 1 percent of Alabama earners – those who make $392,000 or more – pay an average of just 3.8 percent of their income in state and local taxes.

“Alabama’s upside-down taxes hold our state back and drive low-income families deeper into poverty,” said Jim Carnes, policy director of Arise Citizens’ Policy Project. “Our leaders could help right the ship by repealing the state grocery tax and ending tax breaks that favor wealthy people who could easily afford to pay more. It would help modernize our state’s tax system, and it would help Alabama raise enough money for crucial services like education and health care.”

Alabama, like most other states, relies heavily on sales taxes to raise revenue. But Alabama’s sales taxes are particularly regressive because it is one of only four states with no tax break on groceries. Alabama is also one of only three states to allow taxpayers to deduct every dollar of federal income tax payments on their state income taxes. This tax break disproportionately benefits rich households. And Alabama’s revenue system has become even more regressive in recent years as user fees, which fall hardest on low-income people, have expanded to fill holes in state budgets.

“Multiple studies have revealed the growing chasm between the wealthy and everyone else,” ITEP executive director Matt Gardner said. “Upside-down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”

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