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MONTGOMERY — President Barack Obama’s hard line against extending the Bush-era tax cuts to 98 percent of taxpayers could cost Alabama’s Education Trust Fund $145 million, the Department of Revenue said.
House and Senate Education Trust Fund budget members on Friday said that would be a huge hit for income taxes that are earmarked for public school teacher salaries.
“I think it would be devastating,” said House Minority Leader Craig Ford, D-Gadsden, a member of the House Ways and Means Education Committee. “We can’t afford not to have that money.”
Ford said he would oppose any attempt to remove the federal income tax deduction for Alabama taxpayers.
Committee member Rep. Bill Poole, R-Northport, said of the potential losses if Obama and Congress cannot agree how to avoid the so-called “fiscal cliff” that will be caused by the expiration of 2001-03 tax cuts on Dec. 31, “Obviously my best hope is the federal government extends the Bush tax cuts because it’s best for the state’s economy. This would effectively damage our state budget and I hope it will not occur.” The state collected $3.298 billion in income taxes in the fiscal year that ended Sept. 30.
A loss of $145 million would be 4.4 percent. If the economy does not grow to replace the money, the Legislature would have to find a way to do it.
Congress approved the tax cuts at the urging of then-President George W. Bush.
Obama has told Congress he won’t agree to extend the tax cuts on 98 percent of taxpayers unless Congress agrees to raise taxes on the upper 2 percent. Obama also presented Republicans with a proposed deal involving $1.6 trillion in tax increases, but only $400 billion in spending cuts.
Curtis Stewart, the Department of Revenue’s tax policy and research director, said expiration of the tax cuts will increase Alabama taxpayerss’ federal income taxes by an average of $2,000 a year.
Higher federal taxes will increase the federal deduction and lower Alabama’s income tax collections, assuming everything else remains equal.
Stewart explained that of the 1,833 million Alabama income tax returns, about half claim the deduction for federal taxes paid. “The other half have no federal tax deductions or pay no Alabama tax,” he said.
The reason nearly 900,000 Alabama taxpayers who file federal tax returns pay no state income tax is because their incomes are too low, or they receive income that isn’t taxable at the state level, he said.
Income not taxed at the state level include defined benefit plans, state and federal retirements, military pensions and Social Security, to name a few.
“If the tax cuts are not extended, then everybody’s taxes will go up,” Stewart said. “If everything else stays the same and you pay additional federal taxes, then Alabama will have bigger tax deductions.”
According to the White House, the Bush-era tax cuts provide relief to more than 100 million.
http://www.gadsdentimes.com/article/20121130/NEWS/121139985/1016/NEWS?p=2&tc=pg
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