September 30 marked the end of the 2022 fiscal year. For the Alabama state government, it was another record-breaking year. In 2022 the state took more tax dollars from citizens than ever before, ending the year with a $2 billion revenue surplus. In total, state government collected more than $13 billion in revenue in 2022 (for context, collections totaled $8.6B in 2019), shattering the previous record set in 2021.
As the state heads into 2023, the question is what will Governor Kay Ivey and the legislature do with its record surplus? Will they finally provide much-needed tax relief to Alabamians, or will they continue to tell us all the reasons they can’t, including that it would not be the fiscally responsible thing to do?
The numbers speak for themselves. The state has the resources available (provided by you the taxpayer) to provide long-term meaningful tax relief to Alabama’s citizens and job creators. But will they be willing to stop the unprecedented growth of spending to make that a reality?
Consider the numbers. In 2022 the state’s Education Trust Fund (ETF) collected over $10.4 billion in revenue, a 20.5% increase from 2021. Increases in individual and corporate income tax receipts accounted for over $1.5 billion in new revenue last year, increasing by 24.7% and 41.9%, respectively. The state collected almost $1.2 billion more from individuals in 2022.
The State General Fund saw more modest growth of 8.4% when compared to the ETF, but still finished the year with a $216 million revenue surplus. The state’s simplified sellers use tax, which the state began collecting only a few years ago, continued to skyrocket in 2022, bringing almost $233 million to the state general fund.
Do not forget, there is still $1 billion in federal American Rescue Plan Act funds that the state is yet to spend. That is on top of the 2022 revenue surplus.
You get the picture. While many Alabamians struggled with inflation, high gas prices, and economic uncertainty in 2022, the state had its best year ever. At least 32 states have provided some form of tax relief to citizens in 2022. Yet in Alabama, we continue to wait for widespread relief. Given the mountain of cash our state government has at its disposal, if now is not the time to provide historic tax relief to citizens, when will it ever be?
I wish I could say I was confident that structural tax relief was in the cards soon but judging by recent comments from Governor Ivey and other lawmakers, it is hard to be optimistic.
On Monday, Ivey released a written statement reflecting on the state’s revenue surplus and general budget conditions. First, she credited the state’s “conservative management of our budgets” for placing Alabama’s government on strong financial footing. Unless the definition of conservative has drastically changed recently, taxing and spending more money than ever is not conservative.
She went on to blame “reckless” federal spending for Alabama’s current prosperity and warned that she foresees an economic downturn on the horizon. Ivey used this as her reason that the state “cannot make permanent structural change” to the tax code. Instead, she endorsed “some form of rebates,” but gave no indication of how large or small scale she envisions rebates being.
Other state lawmakers have echoed similar sentiments this week. They appear to be coalescing around the idea that a downturn is on the horizon, meaning that the state can only afford temporary relief like a rebate, not permanent reforms.
This is a misguided notion. The state has more than $3 billion in reserve funds that have sat untouched for more than a decade. Both the ETF and SGF have additional reserve funds that could be accessed if there is an economic downturn. Just last month, a report by Moody Analytics indicated that Alabama was well equipped to handle a recession in the next two years without having to cut spending or increase taxes.
Unless there is a historically long recession, Alabama’s government can provide tax cuts to citizens and be stable through a typical economic downturn. On average U.S. recessions have lasted about 17 months.
After taking so much money from citizens over the past few years, a limited tax rebate is not good enough. By sending a small check in the mail to Alabamians, the money will be gone and quickly forgotten. A rebate should truly be the last option, not the default option.
Our lawmakers must think bolder. The Alabama Policy Institute recently proposed $750 million in permanent tax relief for Alabamians. The options to achieve that goal are numerous, including repealing the state tax on groceries, lowering individual and or corporate income tax rates, and adjusting sales tax rates, among others.
While so many Alabamians have struggled over the past few years, our state government has profited on the backs of those same citizens more than ever. We must demand permanent tax relief from our lawmakers. It is time for the people of Alabama to come before its government.
Justin Bogie serves as the Alabama Policy Institute’s Senior Director of Fiscal Policy.
