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Tax Changes In Alabama: The Economic Consequences

5/1/2003

By Commissioned by the Alabama Policy Institute

Tax_Changes_In_AL_Economic_Consequences.pdf
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During this current economic downturn many states are experiencing budget shortfalls and Alabama has not been spared. Governor Bob Riley sent a letter to lawmakers stating that state agencies and public education face an estimated deficit of at least $600 million, which includes required increases in Medicaid benefits, for the budget year that starts October 1st.1 Governor Riley's response to the deficit is to raise taxes by between $1 and $1.3 billion.

ANALYSIS:

During this weak economy, it would be prudent for state leaders to pursue alternative means of raising revenue that would have a less negative impact on the Alabama economy. These combined tax changes in the current package as it is now should lead to an increase in state tax revenue of $1.1 billion, the target the Governor has set. But they will also serve to further slow the Alabama economy and delay the state's economic recovery.

Alabama employment would shrink by over 24,000 jobs or 1.18% of current employment. Investment and disposable income would also decrease by $331 million and $2.3 billion respectively. The only income group that sees a rise in their disposable income is those familiesearning between $10,000 and $19,999, which represents only 17% of households. The other 83% of Alabama households will be worse off because of these tax changes.

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