A fact sheet made possible by the Ford Foundation                                                                                                                         January 8, 2003

 

 

Low-income Alabama taxpayers pay twice the tax rate paid by the wealthiest taxpayers. A new study by Citizens for Tax Justice and the Institute on Taxation and Economic Policy shows that the lowest-paid fifth of Alabama taxpayers – those who made under $13,000 – paid 10.3% of their incomes in state and local taxes in 2002. The wealthiest 1% – those who made over $229,000 – paid only 3.7% of their incomes in Alabama taxes in 2002.

 

There are several problems with Alabama’s tax system – whether income taxes, sales taxes, or property taxes.

 

Alabama is the only state where a family of 3 or 4 has to pay income tax on an income as low as $4,600 a year. Alabama’s income tax threshold has gradually moved to worst-in-the-nation. The problem: Alabama is the only state that has done nothing to improve its personal income tax in the last decade. Every other state with an income tax has made changes in recent years to offer tax relief to low-wage workers. For example, Mississippi now has an income tax threshold of $19,600 for a two-parent family of four.

 

Alabama imposes the highest income tax in the nation on a family of 3 at the poverty line. A mother with two children has to pay $368 in income tax on a poverty-line wage of $13,737 a year. So our problem is not only that the income tax kicks in at the lowest income level; Alabama also charges a higher tax at low incomes than any state in the nation, because we only allow tiny personal exemptions ($300 per child, a tenth of what you get on your federal tax). We tax families deeper into poverty.

 

Alabama is one of 10 states that impose the full sales tax on groceries with no other tax breaks to provide relief from it. Most states do not tax the necessities of life. Alabama taxes infant formula for babies, but exempts formula for calves because it is an input to production.

 

Many Alabamians pay more tax on their groceries than they pay on their homes. Even on a tight budget, a family of three pays nearly $450 a year in grocery taxes if their sales tax rate is 8%. In most Alabama counties a home worth $100,000 is taxed at less than $250 a year in property taxes for education.

 

The property tax in one school district is only 3 mills, which works out to $30 a year on a $100,000 house in Wilcox County, which raises most of its education funding from sales taxes. Alabama’s property taxes are so low that it could triple its average property tax and barely reach the national average. Low property taxes starve our schools for funds... and the quality of children’s education depends on where they happen to live.

 

Alabama should not tax low-income workers deeper into poverty. Alabama “punishes the poor while it pampers the powerful” (Birmingham News). We must restore fairness to our tax system.

 

Arise Citizens’ Policy Project   P. O. Box 1188   Montgomery, AL 36101     (800) 832-9060     www.arisecitizens.org