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Alabama Flax Tax Proposal--Vote Delayed

An Alabama Senate budget committee on Wednesday delayed a vote pushing for a flat state income tax.  The Senate Finance and Taxation Education Committee held a public hearing for a bill that would propose a constitutional amendment creating a flat income tax for individuals and corporations.  In order to impose a flax income tax, Alabama citizens must vote to pass it by a constitutional amendment.

The proposal would cut the personal income tax rate to 2.75 percent from 5 percent and lower the corporate income tax rate to 4.59 percent.  If approved by the Alabama Legislature, the amendment, called "The Simplified Flat Tax Act of 2015," would require voter approval in 2016.

Senate sponsor Bill Hightower, R-Mobile, said he wants to simplify the state tax code so that tax returns fit on a 3x5 index card.  Along with flat rates, it would also eliminate certain exemptions, credits and deductions.  According to a fiscal note, the proposed rate that would begin in tax year 2017 would reduce fiscal year 2018 revenue from the Education Trust Fund by $146.5 million.

Hightower said the goal is to make the tax plan revenue neutral.  "There's no way I'm going to try to cut revenue that comes in," he told the committee.  Some say doing away with deductions and credits would harm retirees and low-income families.  Sen. Vivian Figures, D-Mobile, said she could never support the bill. She said there are other ways of simplifying the tax code.  "You know the saying 'to whom much is given much is required,'" she said. "God has blessed us so that some of us can make money, but I just don't see how it's fair to have a tax rate for everybody."

In a statement Wednesday afternoon, Hightower said the public hearing was designed to bring all stakeholders to the discussion.  He said concerns related to how a flat tax would affect low-income families and defined benefit plans for retirees will be addressed in a related bill laying out the details of the plan.  "When complete, the plan will include stakeholder input and be a fair and balanced approach for Alabama residents," he said.

Kimble Forrister, executive director of Alabama Arise, an advocacy group for low-income families, said he isn't necessarily for or against a flat tax. He gave the committee several suggestions for how to make a flat tax better for taxpayers below the poverty line.

Forrister said the bill in its current form would benefit the wealthiest Alabamians while hurting the poorest. He said a way to solve that would be to increase the income tax threshold for low-income families.  Alabama's current income threshold is $12,600.  Forrister said no other state with a flat tax taxes a family with an income below the poverty line.  "Alabama can't move forward as long as we have an outdated, upside down tax system," he said.  Forrister said Alabama could look at Colorado's flat tax model as example for its own.