Alabama legislator proposes simplified 2.75% Flat Tax

MONTGOMERY, Ala. — State Senator Bill Hightower (R-Mobile) announced a flat income tax proposal Tuesday that would substantially lower the state income tax to only 2.75 percent, but get rid of every state “deduction, credit, exception, and incentive.”

Hightower argues his plan would make the tax code much simpler, leaner, and more easily enforceable without increasing taxes paid by the average Alabamian. Hightower said in a press conference introducing the bill that while the simpler system would decrease the tax bill of most Alabamians, it would also encourage more people to file, instead of shirking their state income tax obligations, keeping overall revenues level.

Similarly, it would get rid of all deductions of federal income and FICA taxes paid, but Hightower maintains that difference would also be made up in the significantly lower rate.

“The current tax code rewards special interests with more than $2 billion in deductions, exemptions, credits, and incentives each year,” said Sen. Hightower. “It’s time for the state to stop playing favorites and start improving the system for all Alabama families and businesses.”

Currently, tax rates for anyone making more than $6,000 is 5 percent. The business income tax would also be decreased from 6 percent to 4.59 percent.

The legislation’s sponsors boast that their system would allow tax returns to be filled out on a sheet the size of a postcard. All filers would need to do is take their Federal Adjusted Gross Income (AGI) and multiply it by 0.0275 (2.75 percent). According to the senator, the average Alabamian spends $300 a year preparing their state tax return, so this bill would constitute a significant savings and the state would also see savings in the cost of enforcement.

The bill would require a two-thirds of both the Alabama House and Senate to either increase the income tax or add back a deduction, credit, exception, or incentive.

“By ensuring a simplicity and fairness in our tax code, we will improve the opportunities and lives of every Alabama family,” Hightower said at the conclusion of the press conference.

Hightower told Yellowhammer Tuesday afternoon that his bill would make the state more competitive in attracting large businesses, while also giving small businesses a break.

“States are competing for business with tax policy,” Hightower said, referencing the 14 states that underwent significant tax reforms in 2014.

The plan is endorsed by six economists from Troy University, as well as Americans for Tax Reform (ATR).

“Senator Hightower’s proposal to lower Alabama tax rates, including the personal income tax and corporate income tax by ending and/or phasing out credits and deductions in the Alabama tax code is an important step in the right direction for tax reform and Alabama taxpayers,” said William Upton, the ATR’s state affairs manager. “The bill’s goal is clear, to create a lower, flatter, fairer tax code that is simple to understand and easy to comply with.”

The bill, a proposed constitutional amendment, has the support of Senate leadership but must be approved by a majority of Alabama voters in the next general election, which won’t occur until the primaries in March 2016. The proposed amendment’s sponsor in the House is Lynn Greer (R-Gadsden).