Alabama House Minority Leader Anthony Daniels, D-Huntsville, will file legislation this year to make permanent the elimination of state income tax on hourly workers’ overtime earnings.
Widely supported by both sides of the aisle when Daniels brought the original legislation in 2023, the cut is costing the state’s education budget significantly more in lost individual income tax revenue than originally expected, about $230.7 million from Jan. 1, 2024 through September.
The tax cut will end in late June if lawmakers don’t extend it in the upcoming legislative session. In his pitch for permanency, Daniels argues it’s generating greater revenues for the state in other tax revenues, increasing companies’ productivity and letting Alabamians who need it keep more of their money.
Upcoming debate
The Legislature will soon debate the future of the tax cut amid flattening revenues to the Education Trust Fund as they prepare to craft the 2026 budget to fund K-12, community colleges and universities.
Daniels’ new legislation will also require a comprehensive economic study of the cut, looking at its direct and indirect impacts and revenues.
“The dynamic scoring of this bill has far more positive implications than the $230 million,” Daniels told Alabama Daily News recently. His math shows the state is gaining money under the cut and he’d like to see an independent study to verify that. He points to recent corporate income tax receipts and sales tax revenues, as well as hiring, in 2024, as proof.
In fiscal year 2024, which included nine months of the tax cut, corporate tax receipts were up 13.6% to $1.5 billion, a nearly $191 million increase over 2023.
So far in fiscal 2025, which started in October, corporate income tax receipts are up 4.6% or $17.4 million over the same time in 2023, prior to the cut going into effect.
“The overtime that people are working is helping companies become more profitable, because they’re getting their products out ahead of schedule and able to add more clients,” Daniels said.
Corporate income tax receipts have increased in recent years, from $582 million in 2019, according to state reports. That growth can also be attributed at least in part to the federal Tax Cuts and Jobs Act corporate rate cut and increased production and profits.
Minus the individual and corporate tax refunds in the first quarter of the year, total income tax revenue to the Education Trust Fund is -0.88% for the first three months of this fiscal year. Income tax revenue is the largest source of money for the ETF, sales tax revenue is second.
So far in fiscal 2025, sales tax revenue to the ETF is up 2% or $10.7 million to $542.1 million. The dynamic scoring Daniels wants could better determine how much of that increase is related to the tax cut.
The legislative session starts Feb. 4.
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EDITOR’S NOTE — This story was written by Mary Sell and originally published by Alabama Daily News. It is reprinted with permission.
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