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Here’s a first look at Bentley’s latest budget reforms and tax hike proposals

Senate President Pro Tem Del Marsh, Governor Robert Bentley, and House Speaker Mike Hubbard
Senate President Pro Tem Del Marsh, Governor Robert Bentley, and House Speaker Mike Hubbard

MONTGOMERY, Ala. — Wednesday morning Yellowhammer obtained a copy of each bill the Bentley administration sent to legislators to consider during the upcoming special session, as well as an email the governor’s top legislative affairs staffer sent to lawmakers.

The draft bills and email show that the governor is recommending a dual approach to the General Fund—pursuing both budget reforms and tax increases.

Here are Governor Bentley’s proposals:

Budget Reforms

Use Tax (the tax on goods and equipment purchased by Alabamians outside of the state): unearmark and transfer to the General Fund.

Unearmarking: Unearmark $400 million, approximately 21 percent of the General Fund’s proposed appropriations, from other General Fund agencies to provide additional flexibility with General Fund appropriations.

– Amends certain restrictions of the Rolling Reserve Act, first put in place in 2010 to help the state avoid proration in the Education Trust Fund.

– Provides for the use of BP Deepwater Horizon oil spill settlement money toward paying off debt.

Tax Increases

Removal of the FICA deduction: Essentially would require many Alabamians to pay taxes on the money they already paid the federal government in taxes. the Federal Insurance Contribution Act, is a 15.3 percent payroll tax split evenly between employees and employers. The revenues pay for Medicare and Social Security. Self-employed Alabamians pay the same 15.3 percent quarterly.

The governor’s office says this would not affect Alabamians who don’t itemize deductions on their state income taxes—around 50 percent of taxpayers—or retired citizens. Additionally, the governor’s bill does not remove the deduction for the 1.45 percent Medicare tax.

This new revenue would go to the Education Trust Fund to replace the Use Tax.

Changes to the Business Privilege Tax: Currently, all businesses in the state must pay a minimum of $100 in “Business Privilege Tax,” regardless of whether their venture was profitable. Today, businesses must pay .00025 percent of their federal taxable income, up to $15,000.

The governor’s proposal would exempt small businesses with less than $10,000 net worth, and change the taxable amount from federal taxable income to “Alabama taxable net worth,” as well as increases the maximum due from $15,000 to $25,000.

Tobacco and e-cigarette tax increase: Would increase the per-pack of cigarette tax from $0.42 to $0.67, and creates a new tax on “consumable vapor products” also known as e-cigs, of $0.25 per milliliter. For perspective, the per milliliter tax would constitute a $3.50 tax for the equivalent of a pack of cigarettes—or over 5 times higher for vapor products, which don’t contain tobacco.

The Fraud Prevention Act: Currently, if don’t believe you’ll incur any tax liability by the end of the year, you can file as exempt from state income tax withholdings. This bill would no longer make that an option, in hopes that it would prevent Alabamians from evading state income taxes.

Economic Development

Bond issue for Gulf Park conference center and hotel: Amid the governor’s tax increases and reforms is the call for an additional $50 million in bonds (debt) to be issued to finance a new conference center and hotel on state property in Baldwin County. This bill is one of the few that has already found its sponsor, Sen. Tripp Pittman (R-Montrose). The project has already received $85.5 million in oil spill recovery money from BP.

The Alabama Legislature is expected to reconvene for the Special Session on August 3rd.


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