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Middle-class
tax relief

Riley’s plan could save some taxpayers as much as $375

By Phillip Rawls
Associated Press Writer

MONTGOMERY — If you make less than $100,000 per year, you could save anywhere between $25 and $375 from Gov. Bob Riley’s proposed income tax cuts.

The amount will depend on your marital status, number of dependents and income.

If you make more than $100,000 per year, Riley’s plan won’t lower — or raise — your taxes.

The two-term Republican governor has given the Legislature a thick package of tax cuts worth $320 million annually when fully phased in.

The biggest part of the tax plan is raising the threshold where a family of four starts paying state income tax from $12,500 to $15,000 and increasing the personal exemption, dependent exemption and standard deduction for households with incomes of $100,000 or less.

Riley said the Legislature helped the working poor last year by raising the income tax threshold from $4,600 to $12,500, but now something should be done to help middle-class families struggling to pay for braces and save for college.

“It’s time to give them some relief,” Riley said.

But many legislators say Riley’s tax cuts would come out of taxes dedicated to public education, and now is not the time for another tax cut.

“We’re going to have as a priority not to take money from the classroom,” House Speaker Seth Hammett said.

Due to a strong state economy, the money available for the state education budget has risen from $4.3 billion in fiscal 2004 to $6.4 billion for fiscal 2008, a 55 percent increase in four years.

Riley has only Republican sponsors for his tax package, even though Democrats dominate the Legislature. Last year’s income tax cut was a bipartisan effort — something Riley hasn’t been able to develop this year.

Riley’s income tax plan would be phased in over five years and would be skipped in any year where the growth in state education tax revenue is expected to be less than 3 percent.

Under Riley’s plan, a family of four making $20,000 would save $136 annually. A family of four making $50,000 or $75,000 would save $375. A family of four making $100,000 would save $200.

A single person with no dependents making $20,000 would save $25. The savings would be the same for single person making $100,000. Those making $50,000 or $75,000 would save $50, according to an analysis done by the state Revenue Department.

Riley said the last bill is something the Legislature must pass to keep Alabama competitive with other Southern states in the hunt for research and development firms.

“If they don’t do it, they are not going to come here,” he said.

Examples of proposed tax cut

How a family of four at different income levels would be affected by Gov. Bob Riley’s income tax proposal:
$20,000 save $136
$50,000 save $375
$75,000 save $375
$100,000 save $200
Over $100,000 no change
How a single person with no dependents would be affected by the governor’s plan:
$20,000 save $25
$50,000 save $50
$75,000 save $50
$100,000 save $25
Over $100,000 no change

Also in the package

Other bills in Riley’s package would:

  • Remove the state income tax from the first $10,000 of taxable retirement income annually, provided the household made less than $100,000 annually. The savings could reach $500 per household.

  • Let small businesses with 25 or fewer employees deduct from their state income tax twice the amount they pay for employees’ health insurance. Allow their employees to deduct twice what they pay toward the insurance. In both cases, that is double the current deduction.

  • Remove sales taxes from nonprescription medicine, starting next year.

  • Give tax credits of up to 50 percent for a worker who returns to school to train for a job classified as high-demand by the state.

  • Provide income tax credits of up to $500 per employee for up to three years for businesses that create jobs in counties with high unemployment.

  • Give employers a state income tax credit for hiring welfare recipients, disabled veterans and other hard-to-place citizens.

  • Provide state income tax credits to companies for research and development in Alabama, up to 20 percent of the federal tax credit that is available.

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

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