$192M tax cut package sails through Alabama House; likely spells end to overtime tax cut

The Alabama House advanced with little discussion and strong bipartisan support Tuesday a four-bill tax cut package, including a reduction on the state sales tax on groceries, that would represent an annual savings of $192 million for Alabamians.

“With the passage of this tax cut package, the Alabama House of Representatives has now passed 15 tax cuts since the current quadrennium began in 2022,” said House Speaker Nathaniel Ledbetter, R-Rainsville, in a statement Tuesday.

“As shopping carts get lighter and grocery bills continue to rise, I am particularly proud that we were able to double down on the grocery tax cut, which is the largest cut in state history and will save Alabama families a minimum of $236 per year.”

Key priority

With the package’s passage, however, extending the state’s income tax exemption on overtime pay — a key priority this year for House Democrats — now becomes unlikely given its price tag of more than $300 million per year, which came as a surprise to lawmakers after the initiative had originally been projected to cost $34 million.

“Today, we have the opportunity to reduce taxes on just about everyone in the state of Alabama,” Garrett said introducing House Bill 386.

Alabama Democrats have long called for the state tax on groceries to be eliminated entirely, with Alabama being among just 10 states to issue any state sales tax on groceries. That effort culminated in 2023 when lawmakers passed a bill cutting the state sales tax on groceries by 1 cent, with a provision for additional cuts so long as revenue to the state Education Trust Fund saw a growth of at least 3.5%.

While the ETF has yet to see 3.5% annual growth since the passage of the initial state grocery tax cut, Garrett, citing the state’s strong financial position, made his case for advancing the additional one percentage point tax cut, and also spoke to calls from House Democrats to completely eliminate the state grocery tax.

“We’re one of the few states that taxes groceries, but (with this proposal we will) have now cut it 50%, so I believe this is a step toward (completely eliminating the state sales tax on groceries),” Garrett said. “But also, we’re providing relief in other areas to a broad base of people and not jeopardizing our education budget process.”

Full story.

EDITOR’S NOTE — This story was written by Alexander Willis and originally published by Alabama Daily News.