Historic Tax Cuts Become Reality for Many Working Alabama Families
By
Governor Bob Riley
April 18, 2006

A few days ago I signed into law historic tax cut legislation that will improve the lives of thousands of Alabama taxpayers for generations to come. The bill, which passed with overwhelming bipartisan support, provides much needed tax relief to struggling Alabama families and begins the process of making our regressive and immoral tax system more just.

Last winter, before the current legislative session began, State Finance Director Jim Main informed me that Alabama’s strong economy had resulted in a $1 billion projected surplus in the Education Trust Fund. This surplus gave us the opportunity to invest more in education than ever before in the history of our state and still be able to offer tax cuts for working families.

That is why my 2006 State of the State Address included a call for the first major tax cut in modern history with every taxpayer in Alabama receiving tax relief. My plan would increase the threshold at which every taxpayer begins to pay taxes while simultaneously increasing the personal and dependent exemptions that could be claimed.

An important part of the proposal would end Alabama’s immoral practice of beginning to tax working families when they earn more than $4,600 a year. Our sister southern state of Mississippi, for example, does not begin taxing families until they earn almost $20,000 a year, yet we tax families that make less than $5,000.

Before my State of the State Address, tax cuts were not even on the table for consideration, but, after the speech, they became the focal point of debate for the legislative session. Republicans immediately embraced my call for tax cuts while Democrats were initially skeptical, but, for the first time in anyone’s memory, the idea was being discussed seriously.

Like many initiatives that make their way through the legislative process, the tax cut bill I signed this week differed from the one I originally proposed, but it still achieves several of the goals I laid out.

For the first time in its 187-year history, Alabama will now let working families keep the first $12,500 they earn each year tax-free. For many taxpayers, the dependent exemption will rise from $300 to $1,000, and standard deductions for couples will more than double to $7,500.

Roughly 60 percent of Alabama taxpayers will receive meaningful relief under the plan that I signed into law. While that is an admirable statistic, and one of which I am proud, it is my hope that next year, when the Legislature reconvenes, we can expand the tax cuts so that even more taxpayers and families can reap the benefits their efforts have produced.

This wasn’t the only tax relief, however, that became law during this legislative session. In addition to an across-the-board tax cut for all taxpayers, I also proposed a statewide sales tax holiday during my State of the State Address. This bill was sponsored by Rep. Mac Gipson and creates a state sales tax holiday prior to the beginning of each school year. On the first full weekend of August each year, from the beginning of Friday through the end of Sunday, there will be no state sales tax on certain back-to-school items. This new law makes it easier for families to purchase school clothes, school supplies and other necessities that will help their children and grandchildren learn.

It is hard to believe that four short years ago, Alabama was faced with record shortfalls totaling more than three-quarters of a billion dollars in both budgets. With conservative budgeting practices, a tightening of the state’s fiscal belt and industrial recruitment efforts producing the lowest unemployment rates in history, we have turned that record deficit into a record surplus.

As a result, we have finally righted a major wrong that has existed in our state’s regressive tax code for decades. At the same time, we’ve also established Alabama’s first state sales tax holiday in history. Both of these new laws will provide meaningful tax relief to citizens across our great state.