Wednesday, March 28, 2007

State tax burden on poor lightens

from The Birmingham News

Despite 2007 decrease, Alabama tax threshold still nation's 2nd lowest

MARY ORNDORFF

WASHINGTON - The poor in Alabama are paying less state income tax this year, but it's not enough of a break to rid Alabama of the nation's heaviest tax burden on families of four with poverty level income, according to a new study.

With tax season in full swing, residents won't be able to take advantage of the Jan.1 change on this year's tax returns. But low-income taxpapers will see a difference come April 2008.

A married couple with two dependent children earning $20,615 this year will pay $383 in state income tax, a decrease from $573 for 2006, but still the highest in the country.

For the first time in decades, the Alabama Legislature increased the point at which state income tax is owed, a move hailed by Gov. Bob Riley last year as a moral victory for families trying to work their way out of poverty. But as other states enact changes of their own, Alabama's national status as the most aggressive taxer of the poor is barely budged, according to the report from the Center on Budget and Policy Priorities.

"It is extremely heartening to find Alabama taking action, but it does appear that further action is needed," said Jason Levitis, author of the nonprofit organization's annual look at income tax burdens on the poor.

Alabama for years taxed families who made at least $4,600, by far the lowest threshold in the nation. For 2007, the threshold was increased to $12,600 for a family of four, the second lowest in the country, ahead only of Montana at $11,300, the report found. Last year, 19 states collected income taxes on families of four below the federal poverty level. Alabama and five other states still tax those earning less than three-fourths of the poverty level.

"In too many states, poor and near-poor families working to join the middle class are instead being taxed back into poverty," Levitis said.

Alabama's long history of taxing lower income families harder than most or all other states holds true no matter which income statistic is used.

For 2006, before the tax law changed, Alabama collected the second highest tax - $218 - from a single parent with two children earning minimum wage, or $10,712. For a two-parent family of four earning minimum wage, the tax was $178, ahead of Hawaii and West Virginia, in second place, at $83.

For a family of three earning 125 percent of the federal poverty level, or $20,099, Alabama charged income tax of $683, the highest in the country.

For a family of four at 125 percent of poverty, or $25,769, the state tax was the fourth highest, or $828.

`It just isn't right':

There are plans for additional tax relief now pending in Montgomery. Riley wants to again bump the income tax threshold to $15,600 over five years, which would benefit anyone earning less than $100,000 a year.

If it were approved and no other states changed their tax laws, Alabama would be tied for fourth lowest threshold for a family of four, behind Montana, Hawaii and Indiana and tied with Illinois and Ohio.

"With many Alabama families who are struggling to meet the higher cost of living today and the fact that Alabama has such low threshold, still, it just isn't right," said Riley spokesman Jeff Emerson. "We made tremendous progress compared to where we were, and Governor Riley hopes there will be another bipartisan effort this year to help even more families."

Kimble Forrister, state coordinator of the anti-poverty group Alabama Arise, said his organization advocates a one-year leap to a threshold of $15,800.

"This is real money to people who live below the poverty line, and every little bit helps for them," Forrister said. "But also when we work toward a cure at the bottom, we're also improving things for the middle."

The full report, The Impact of State Income Taxes on Low-Income Families in 2006, is available at www.cbpp.org.

E-mail: morndorff@bhamnews.com

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