Alabama’s overtime tax cut works for workers; let’s make it permanent: op-ed

Alabama State House Minority Leader Rep. Anthony Daniels, D-Huntsville at the Port City Classic's Black Business Expo on Friday, Nov. 3, 2023, at the Arthur R. Outlaw Mobile Convention Center in Mobile, Ala.John Sharp/jsharp@al.com

This is a guest opinion column

Alabama’s working families could soon face the largest state tax increase in history.

You see, last year we cut the state income tax on overtime pay, but that tax cut was set to expire this summer. And some lawmakers seem to be fine with letting it expire, which would mean a 5 percent tax increase on overtime pay.

The reason we cut the tax on overtime pay was simple: it’s the right thing to do for working families and the right way to boost our economy. Unfortunately, not everyone agrees.

Instead, a few legislators want to let the tax cut expire, putting a $230 million tax burden on working families.

That’s wrong; it’s also shortsighted. How? Let’s do some rough math.

First, corporate tax receipts increased by 13.65 percent over the past fiscal year. That’s $190.8 million in new dollars in our state budget from increased productivity, largely driven by overtime workers. Gross individual income tax receipts rose by 1.92 percent, a $130.9 million increase for fiscal year 2024 alone. In fact, we’re already on course for a 5 percent increase in growth since October (with overall growth in the Education Trust Fund at $1 billion).

Second, we’re gaining additional revenue on increased sales tax collections without raising the sales tax. That’s because when hardworking Alabamians have more money to provide for their families, they spend it – especially in managing rising consumer costs and inflation. As a result, we’ve already seen $10.3 million in state sales tax revenue and $14 million for cities and counties.

Finally, there are roughly 37,000 more Alabamians employed than there were between November 2023 and September 2024, primarily in manufacturing, transportation, utilities, healthcare, and other vital sectors that offer overtime. This includes people who have been out of the workforce since COVID, and Alabamians who are being recruited back from their jobs across state lines.

Remember, all those workers still pay 5 percent state income tax on their first 40 hours per week. The median household income in Alabama is $60,000 a year, meaning each pays about $3,000 a year in income tax. That’s another $111 million in new revenue.

In summary, the overtime tax cut is paying for itself and more. It’s the driving force behind a tax revenue increase of more than $450 million in FY 2024 alone – a solid return on our $230 million investment in Alabama workers.

It’s working for all of us, especially the workers stepping up and going the extra mile to earn additional take-home pay.

Sadly, some don’t see it that way. I’ve even seen opponents try to paint the tax cut as taking money from schools and children. As a former public school teacher, a strong defender of public education, and a parent of young children, this makes my head spin. It seems pretty basic, but I must point out that children benefit when their parents bring home more of their money.

Yes, their money! Remember, it’s not a handout, a bailout, or an entitlement program. It’s not aimless government spending. It’s a tax cut that keeps your hard-earned money where it belongs: with you and your family.

The bottom line: if lawmakers think the overtime tax cut may be too costly, then we should apply the same scrutiny, especially in terms of productivity, to all major initiatives in our $3.3 billion state budget.

An across-the-board tax cut for all workers is another good idea, but it should come in addition to – not instead of – the overtime tax cut.

Why? Because the overtime tax cut is driving record-level productivity and growth. It’s paying off and will continue to do so provided the legislature makes it permanent. Opponents either fail to see the big picture or simply believe that our state coffers need the money more than hard-working families do. That’s too bad. And it won’t stop me from fighting tooth and nail to make this tax cut permanent.

Workers power our economy. Workers are our economy. Their wages generate the sales taxes that fund our ETF.

Thanks to the overtime time tax cut, Alabama’s economy is ramping up while other states have been slowing down.

Thanks to the overtime tax cut, employers are having an easier time filling jobs and keeping skilled and experienced workers.

Thanks to the overtime tax cut, hundreds of thousands of people across Alabama – linemen, shipbuilders, education support personnel, healthcare, service industry workers, firefighters, law enforcement, and manufacturing employees – are back at work.

And thanks to the overtime tax cut, they have more money in their pockets – dollars they are empowered to spend on what’s best for their families. Where I come from, that’s an achievement that should be celebrated – not rolled back. This isn’t just about math. It’s about people, real people.

I was raised in a working-class family where overtime pay was a way to make ends meet. For years, my uncle worked at the old TNS Mills in Eufaula. He was always there to support his extended family, and he always had a way of making yesterday’s dollar extend to next week.

Making this tax cut permanent will make life easier for families dealing with the same challenges mine faced day in and day out. The overtime tax cut isn’t just solid public policy, it’s good for people.

If legislators sit on their hands and allow this tax cut to expire, they are dumping a $230 million tax burden on those same working families that our entire economy depends on. And our state will risk forfeiting the fruits of an economy boosted by additional overtime workers. That looks more like a cash grab than the fiscal responsibility claimed by the few opponents of the overtime tax cut.

When we look at it that way, there’s only one good option: let’s make the overtime tax cut permanent in Alabama.

Rep. Anthony Daniels, D-Huntsville, is Alabama State House Minority Leader.