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FRIDAY, MARCH 30, 2007

Plan aims to remove sales tax on food

By Phillip Rawls
Associated Press Writer

MONTGOMERY — An architect of the income tax cut enacted last year has a new plan for the Legislature this year: Remove the state sales tax on food, reduce taxes on low-income Alabamians and raise taxes on wealthier citizens.

The plan, designed by state Rep. John Knight in conjunction with the Alabama Arise Citizens' Policy Project, is supposed to be nearly revenue neutral and not significantly affect the collection of income and sales taxes that finance public education.

"There is no way I would propose anything that would take money away from education," Knight said Thursday at a luncheon sponsored by Arise.

Last year, Knight and Arise worked with Gov. Bob Riley to get the Legislature to pass a $60 million tax cut that raised the threshold where families start paying state income taxes.

Knight, D-Montgomery, said the last part of his plan will be the hardest to pass because it is a tax increase.

Knight's proposal will compete with one offered earlier by the governor. Riley's would raise the state income tax threshold, offer tax cuts to retirees, provide tax cuts to business that hire hard-to-place workers, and provide tax deductions for small businesses that provide health insurance to their employees.

Riley's communications director, Jeff Emerson, said Riley believes his plan is better because it helps middle-class families and stimulates business growth without raising anyone's taxes.

But that's also why Riley's plan has drawn opposition from several groups, including the Alabama Education Association, which estimates it would reduce income tax collections for public education by $350 million annually.

AEA Executive Secretary Paul Hubbert said he hasn't seen the details of Knight's plan, but plans to study it closely.

"We're certainly open to tax reform, but we are not open to taking a major hit in the Education Trust Fund," Hubbert said.

Legislative reaction to Knight's plan was mixed.

Rep. Lesley Vance, D-Phenix City, called it "a good idea" and said removing the sales tax on food would help sell the public on the constitutional amendment.

Rep. Mac Gipson, R-Prattville, said he dislikes removing the federal income tax deduction because it would hit the people who are making Alabama's economy grow.

"I don't want to disproportionately tax the wealthy. They have the money to invest in our economy," Gipson said.

Eliminating sales tax on food

The plan by Rep. John Knight, D-Montgomery, would:

  • Remove the state’s 4 percent state sales tax on groceries, which would save taxpayers about $300 million annually. That would leave Mississippi as the only state with a state sales tax on groceries.

  • Expand the standard deduction to $10,700. It is currently $4,000 for middle-income families. The change would save taxpayers $188 million.

  • Raise the dependent deduction to $2,000 per child. It now ranges from $300 to $1,000, depending on a family’s income. That would raise the threshold where a family of four starts paying state income tax from $12,500 to $17,700 and would save taxpayers $68 million annually.

  • End Alabama’s state income tax deduction for federal income taxes paid. Iowa and Louisiana are the only other states with the deduction. Ending the deduction would raise more than $540 million annually, with 80 percent of that coming from the top 20 percent of Alabama taxpayers.

    - The Associated Press

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

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