Alabama is facing a budget problem

Tax Increases Coming To Alabama?

Alabama is facing a budget problem. The state needs to come up with around $700 million to sure up its finances. According to the Associated Press, Governor Robert Bentley is now considering tax increases to help fix the budget.

Governor Bentley has said in the past and continues to state that tax increases are a last resort to fix the budget. Other options are on the table, with even legalized gambling being looked at. The governor has said gambling was not his favorite revenue idea as it is an inexact form of revenue. Gambling is also unpopular with the Republican party’s social conservative base.

If some form of tax increase is applied, it will likely come in the form of reduced deductions. Alabama is one of a few states in the country that allows tax payers to deduct their FICA taxes and federal income taxes from their state income taxes. While this approach would not amount to a rate increase, tax payers would see their tax bills go up.

Governor Bentley is running into the same problem GOP governors across the country are facing when it comes to budgets. The promise of tax cuts balancing the budget has come up short in several states. The most notable example of this phenomenon has been Kansas, where Governor Sam Brownback’s extensive tax cuts have decimated the state’s budget.

Tax cuts need to be paired with budget cuts in order to balance the budget. The stimulative effect of cutting taxes has proven inefficient to cover the lost revenue. We have seen this play out on the national level under President Reagan and George W. Bush. Both presidents cut taxes, but they also ran high deficits due to their failure to trim the budget enough.

Governor Bentley generally receives favorable scores from conservatives on his spending policies. His tax policy has seen less praise, with the CATO Institute saying it was not inspiring in their 2014 report on the nation’s governors. CATO notes that Governor Bentley has opposed tax increases in the past, but has not pushed for major tax reform. That score is likely to sink further if the governor ends up cutting deductions.