Tax Reform

Cigarette tax for Medicaid: A win-win to improve health and fill Alabama's revenue gap

The future of Alabama Medicaid is on the line as lawmakers consider a threadbare 2017 General Fund budget. Without significant new revenue, Medicaid would not only lose the promising regional care organizations (RCOs) set to launch in October but also would cut vital services and doctor payments. Those cuts could place the Medicaid program itself – and Alabama’s entire health care system – at risk. (Click here for a PDF version of this overview.)

The Alabama Health Care Improvement Task Force has proposed a solution that would:

  • Increase Alabama’s cigarette tax by 75 cents a pack, bringing in an estimated $200 million in new General Fund revenue in the first year.
  • Direct 90 percent of the new revenue (or $180 million) to Medicaid.
  • Direct the remaining 10 percent (or $20 million) to the Department of Mental Health for substance abuse treatment services.

A 75-cent cigarette tax increase would be a win-win for Alabama because it would:

  • Fill the Medicaid budget shortfall, strengthening the program and saving the RCO reforms that are designed to save money while keeping patients healthier.
  • Encourage smokers to quit and discourage young people from starting.
  • Have disproportionate health benefits for low-income Alabamians, who are more likely to respond to the tax increase by quitting smoking.
  • Have a long-term positive impact on public health – and health care costs for everyone. Even if smokers quit and cigarette tax revenues drop, Medicaid would save money because fewer people would have smoking-related diseases.

BOTTOM LINE: Now is the time to raise the cigarette tax by 75 cents a pack to save Medicaid, save health care dollars and save lives in Alabama.

Posted March 7, 2016.

7 things to know about the cigarette tax

The Alabama Legislature is considering a cigarette tax increase during 2015’s second special session. Without significant new General Fund revenue, the state may make enormous cuts to Medicaid, child care, public safety and other vital services.

As lawmakers decide how to address the General Fund shortfall, here are seven things to know about tobacco taxes.

6 things to know about the FICA deduction

The Alabama Legislature may consider removing the state FICA income tax deduction during 2015’s second special session. Without significant new General Fund revenue, the state may make enormous cuts to Medicaid, child care, public safety and other vital services.

As lawmakers decide how to address the General Fund shortfall, here are six things to know about the FICA deduction.

Out of Step: Alabama's Unusual State Tax State System -- 2014 update

Taxes are the tools that Americans use to pay for education, public health, transportation and other elements of the common good. But in Alabama, the tax system is upside down, with low- and middle-income people paying twice the share of their income in state and local taxes that the top 1 percent pay.

This updated fact sheet looks at the different ways that states collect revenues to pay for public services and examines some of the differences that place Alabama's tax system out of line with the way most other states do things.

Grocery Tax Policy Choices 2012

Alabama's tax system is upside down, and the state sales tax on groceries is one reason why. Alabama remains one of only two states -- the other is Mississippi -- with no tax break on groceries. Food costs consume a larger portion of the household budget for low-income families than for those who are better off, so the grocery tax hits low-income people especially hard. The grocery tax is part of why Alabama's overall tax system requires low- and middle-income people to pay twice as big a share of their incomes in state and local taxes as the riches households pay.

Read issue brief here.

A Tax on Survival: Grocery Tax Policies in America

Food takes a much bigger bite out of the household budget for low-income families than for richer ones, and sales taxes on groceries thus hit harder at lower incomes. In recognition of this fact, most states either have exempted groceries from state sales taxes entirely or have devised ways to help offset grocery taxes for low-income people. Alabama and Mississippi stand alone in offering no tax break break on groceries.

This fact sheet considers the effects of grocery taxes on low-income households and examines the ways that Alabama could reduce or eliminate its sales tax on groceries.

Out of Step: Alabama's Unusual State Tax System

Partly by accident and partly by design, state taxes affect Alabamians differently than people almost everywhere else.

This fact sheet looks at the various ways in which states collect revenue and examines some of the differences that place Alabama's tax system out of line with the way most other states do things.

A Sense of Scale: Small Businesses in Alabama

Lawmakers often debate how a bill would affect small businesses, but no single official definition of "small business" exists. What are small businesses, anyway? How are they taxed in Alabama? And do small businesses survive or fail because of taxes, or do other factors play larger roles?

This fact sheet answers these questions and more.

A bill to remove the state grocery tax

Tough times have made it harder for many Alabama families to make ends meet. As the nation recovers from an economic recession that has driven the state's unemployment rate into the double digits, Alabama remains one of only two states -- the other is Mississippi -- that continue to offer no tax break on groceries.

HB 1, sponsored by Rep. John Knight, would amend the Alabama Constitution to remove the state portion of the sales tax on groceries and cap the state deduction for federal income taxes.

Read fact sheet here.

Big Piece of a Small Pie: Alabama's Tax Paradox -- UPDATED

If you talk to a low-income Alabamian about the state's tax system, you're liable to hear two things. One is a boast that the state has some of the nation's lowest taxes. The other is a complaint that, nevertheless, the person pays too much in taxes. The statements may sound contradictory, but both are grounded in reality.

This fact sheet examines an Alabama tax paradox: that low-income residents pay so much in taxes even as their state collects comparatively little money for the public services that can help make their lives better.

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