Press Release: Alabama Policy Institute Outlines Legislative Priorities for 2026 Tax Reform
Montgomery, AL – As the Alabama Policy Institute reflects on the recently concluded 2025 Legislative session, it underscores the urgent need for lawmakers to address tax reform ahead of the 2026 session. Despite conservative achievements, only a modest 1% reduction in grocery taxes was enacted, leaving the core tax burden largely unchanged.
The failure to make the state’s overtime income tax exemption permanent signifies one of the most significant tax increases in Alabama history, impacting working families significantly. Heading into 2026, Alabama lawmakers are urged to prioritize reinstating this exemption, which could save taxpayers approximately $320 million annually. Alabama U.S. Senator Tommy Tuberville’s proposed tax deductions for overtime wages further emphasizes the need for swift reforms.
Current federal tax policies under the 2017 Tax Cuts and Jobs Act (TCJA) are poised for extension discussions, potentially affecting Alabama’s tax landscape. While the federal corporate tax rate remains unchanged, the legislature is encouraged to lower Alabama’s corporate income tax rate from 6.5%—the highest in the Southeast—to enhance competitiveness for businesses and attract new investment.
Moreover, Alabama’s individual income tax rate, which stands among the highest in the region, necessitates reevaluation. A shift to a flat income tax rate of less than 4% could significantly benefit residents and improve the state’s attractiveness to new residents.
In addition to these measures, the Policy Institute advocates for the complete repeal of the business privilege tax, which burdens businesses with fees simply for operating in Alabama. Continued expansion of government expenditures rather than tax relief indicates a pressing need for lawmakers to prioritize reducing the tax load on Alabamians in the upcoming 2026 session.
For more information on the Alabama Policy Institute’s legislative recommendations, visit their website.
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