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Flat Tax Boom for Rich, Bust for Poor, According to Report

By Bill Britt
Alabama Political Reporter

MONTGOMERY—The idea of a flat tax is being championed by Sen. Bill Hightower (R-Mobile) and other senators as a measure to simplify the tax code and make the State more competitive without increasing the tax burden on the State’s working class. 

However, Carol Gundlach, policy analyst at Alabama Arise and her partner in this report, Chris Sanders, do not necessarily see it that way. In an analysis published this week, Gundlach says of the flat tax bill: “Alabamians struggling to make ends meet could have to pay State income tax on the first $100 they earn under a new flat tax.”

SB 409 as currently written would eliminate all personal exemptions and standard deductions, which would further skew the system against the working class, according to their report.

According to the Gundlach/Sanders report, “Alabama would be the only state that effectively has no income tax threshold. The State’s current threshold – the minimum income level where one begins to pay income tax – is already the nation’s worst: just $12,600 for a family of four.”

Under Hightower’s plan, the income tax rate would be cut from five percent to 2.75 percent, which he argues helps working families.

Again Gundlach and Sanders point out, “Overall, Alabamians with low and moderate incomes pay twice the share of their incomes in state and local taxes that the top one percent do. Requiring families who live in deep poverty to pay income tax would make that gap even larger.”

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According to their assessment, low-income workers would pay higher taxes under Hightower’s proposal, while the richest Alabamians would get a tax break.

At his recent press conference, Hightower stated, “By ensuring a simplicity and fairness in our tax code, we will improve the opportunities and lives of every Alabama family.”

Citing a study by the Institute on Taxation and Economic Policy (ITEP), a nonpartisan research organization based in Washington, DC, they concluded that Alabama families earning less than $18,000 a year would pay more in taxes under the plan, while, 90 percent of Alabamians earning $431,000 or more would get a tax break.

In October 22, 2011,

The Economist called the idea of a National flat tax a “fraud” saying, “It raises taxes on the poor and lowers them on the rich. … The rich usually pay a higher percent of their incomes in income taxes than do the poor.”

Hightower’s SB409, according to Gundlach and Sanders, “would end most state income tax breaks for individuals – but not for corporations.”

Under the plan, “Individuals could claim a deduction only if it is for a charitable contribution or required by federal law, unless 80 percent of the Legislature approves a new deduction… but would protect almost all corporate tax credits, deductions and exemptions.” Citing the ITEP report they estimate “more than 80 percent of SB 409’s corporate tax cuts would benefit out-of-state corporations and stockholders, ITEP estimates.”

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The bill was carried over in committee on Wednesday but is expected to return next week.

Bill Britt
Written By

Bill Britt is editor-in-chief at the Alabama Political Reporter and host of The Voice of Alabama Politics. You can email him at [email protected] or follow him on Twitter.

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