Given the sad shape of the economy, many Alabamians probably took comfort the other day when The Birmingham News reported that residents paid the lowest state and local taxes per capita in the nation in fiscal 2009, $2,793.
But last week the national Center on Budget and Policy Priorities, a Washington think tank, reported that Alabama tops the nation in sticking its poorest people with the nation's stiffest income tax on the working poor. A two-parent Alabama family of four with an income of $22,314, the federal poverty line, would have paid $498 in state income tax in 2010. Compare that to $292 in Hawaii, $238 in George and $234 in Oregon.
Working poor families have been exempt from federal income taxes since the mid-1980s, and in the last 20 years or so nine states have eliminated incomes taxes on working poor families of four. Today, Alabama is one of only 15 states that requires such families to pay income taxes.
Worse still, Alabama is among five states that require two-parent families of four to pay income tax if they make three quarters of of the federal poverty line, $16,736. Alabama also tops the ranking of state income tax thresholds for single-parent families of three, $9,800. Montana is right behind at $10,000, and Georgia has the third lowest threshold, $12,700.
Montana leads with the lowest income tax threshold for a two-parent family of four, $12,200, and Alabama isn't far behind at $12,600. Georgia is third again with a threshold of $15,900.
Those who say even the poor should pay taxes need to remember that Alabama does a great job of that with state and local sales taxes. According to the Tax Foundation, a conservative think tank, Alabama has the 10th highest combined state and local sales tax rate in the country. And sales taxes fall heaviest on those who have the least to spend.