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Income tax, rental laws take effect Jan. 1

By Phillip Rawls
Associated Press Writer

MONTGOMERY (AP) — On New Year's Day, Alabama will shed its reputation for being the only state that levied income taxes on a family of four making less than $10,000 annually.

An income tax cut, recommended by Gov. Bob Riley and approved by the Legislature in April, takes effect Monday. The $60 million tax cut will raise the threshold where a family of four starts paying income taxes from $4,600 annually to $12,500.

Riley said the new year will mark an end to Alabama having "the nation's most unfair tax system."

Also taking effect Monday is a law that, for the first time in Alabama, spells out the rights of landlords and tenants. The law, approved by the Legislature in March, affects 500,000 rental houses and apartments throughout the state.

The law requires landlords to provide safe, habitable housing, and it allows the landlords to evict bad tenants quicker than in the past.

"We are not under any illusion this law is going to end substandard housing in Alabama," said Kimble Forrister, state coordinator for Alabama Arise. But he said the new law will level the playing field for renters, who had virtually no legal protections in the past.

Both the landlord-tenant law and the income tax break took several years to pass the Legislature.

A low tax threshold

The Legislature acted on the income tax break after the Center on Budget and Policy Priorities released a report in February showing Alabama had become the only state in the country levying an income tax on a family of four making less than $10,000 annually.

"Alabama will no longer be at the bottom of the list when compared to other states," Riley said.

The new law raises Alabama to the fourth lowest threshold, behind West Virginia at $10,000, Montana at $10,800 and Hawaii at $11,500, according to 2005 tax figures.

The bill increases the standard deduction for a couple from $4,000 to $7,500 for taxpayers making under $20,000 annually in adjusted gross income. For taxpayers making over $30,000 in adjusted gross income, the deduction remains at $4,000. The deduction would be between $4,000 and $7,500, depending on income, for taxpayers making between $20,000 and $30,000.

Under the legislation, the deduction for a child would be increased from $300 to $1,000 for families with income under $20,000 and to $500 for families with income under $100,000.

The state Revenue Department estimates that 60 percent of Alabama's taxpayers will benefit from the new law and the filing of 119,000 Alabama tax returns will be eliminated.

Riley not through

Riley said he's not through.

When the Legislature meets for its next regular session in March, Riley said he will try to expand the income tax cut to cover more middle-class families.

He wants to raise the threshold for a family of four from $12,500 to $15,000 and allow more for personal exemptions, dependent exemptions and standard deductions.

He is also advocating removing the state income tax on the first $10,000 of taxable retirement income.

"The tax cut we passed earlier this year was a huge step in the right direction, but it wasn't enough. It left a lot of Alabama's working families out," Riley said.

Riley said his plan would affect more than 90 percent of Alabama's families — all those with incomes up to $100,000.

Riley's plan, when fully phased in after five years, would cost $205 million annually. He said the state's rapidly growing economy and record low unemployment will allow the tax cut without budget cuts.

The Alabama Education Association, the lobbying group for teachers and other school employees, plans to fight the tax cut.

AEA Executive Secretary Paul Hubbert said Alabama's public schools are among the poorest funded in the nation and can't afford to lose revenue.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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