Poor Alabamians continue to pay a larger share of their income in state and local taxes than upper-income earners, but the state no longer is among the "Terrible Ten," according to a report released Wednesday.



The fifth edition of "Who Pays?" by the Institute on Taxation and Policy pegs Alabama as the 12th most "unfair" state because of the burden falling on lower-income earners. That is an improvement from the group's last report two years ago when gap between the proportional burden on the lowest- and highest earns was 10th highest in the country.



The improvement, though, does not result from any significant narrowing of the gap in Alabama, where the poorest still pay more than 11/2 times as much of their income on state and local taxes than the richest. Alabama's only significant tax change since the 2013 report was to add a pair of tax breaks to support a school choice program. The Institute on Taxation and Policy did not factor those changes, which likely would not have altered the conclusions significantly anyway.



Instead, Alabama's improved standing arises from tax changes in other states. Nine of the 10 states in the "Terrible Ten" are the same. Kansas, which enacted steep tax cuts under Gov. Sam Brownback, entered the list at No. 9 while Alabama - which was 10th - dropped out.



"Alabama has changed almost not at all," said Carol Gundlach, a budget analyst for the Arise Citizens' Policy Project in Montgomery. "Our Legislature has not passed some incredibly regressive measures that other states have."

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The poor pay more

Non-elderly families earning less than $17,000 a year - the bottom 20 percent in Alabama - pay 10 percent of their incomes on average in state and local taxes. Meanwhile, the top 1 percent - families making more than $392,000 - pay just 3.8 percent of income.



Alabama is not alone. The poorest taxpayers pay a greater percentage than the richest in all 50 states and the District of Columbia.



"In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else," Institute on Taxation and Policy Executive Director Matt Gardner, said in a prepared statement. "Upside down state tax systems didn't cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn't wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer."



The gap is greater in Alabama than most places for a number of reasons.





It has a relatively low income tax rate but exempts only a small number of taxpayers at the bottom of the scale. The state also is one of a few that lets taxpayers deduct their federal income taxes when they pay state taxes. That disproportionately benefits higher-income earners because many middle- and lower-class folks pay little or nothing in federal taxes and, therefore, have little or nothing to deduct from their state taxes.



For instance, taxpayers in the bottom 40 percent in Alabama receive no benefit from the federal income tax deduction. The top 1 percent - with average incomes of more than $1 million a year - can write off almost 1 percent of their taxes.



Alabama also has among the nation's highest sales tax rates, which disproportionately affect middle - and lower-income earners who typical spend most or all of the money they make, while higher-earners usually save more.



And unlike most states with sales taxes, Alabama applies the levy on groceries.



The result, according to the report, is that the bottom 20 percent of wage earners spend 7.5 percent of their incomes on sales taxes. The middle 20 percent pay 5.7 percent of their incomes, while the top 1 percent of income earners, spend just 1 percent on sales taxes.





Comparing the 2013 study with the report issued Wednesday, the top 20 percent paid a slightly higher percentage of their incomes than two years ago. The burden faced by bottom 40 percent of income earners declined by two tenths of a percent



Gundlach said she believe that small decline is a residual effect of the recession. "People just aren't spending as much," she said.



States on the other end of the spectrum - California, Delaware and the District have the smallest gaps - have more graduated income tax rates and take a higher bite at higher levels of income. They also have large, refundable earned income tax credits that return more money to low-income earners.



Gundlach said Alabama could make its tax system more fair by eliminating the federal income tax deduction and exempting groceries from the sales tax or giving low-income voters a tax credit to compensate for the grocery tax. She said the changes would have the added benefit of helping the state solve a looming budget shortfall. The Institute on Taxation and Policy estimates that eliminating the income tax deduction would generate $606 million. Eliminating the ability to deduct payroll taxes from state taxes would bring in an additional $226 million.



Meg Wiehe, the state policy director for Institute on Taxation and Policy, said in a statement that regressive tax structures exacerbate income inequality, which would slow future economic growth.



"Americans generally have a visceral reaction to taxes, but the truth is we need them to make state governments work for all citizens," she stated. "The problem with our state tax systems is that we are asking far more of those who can afford the least."



Income data cited by the group make it clear that the richest Alabamians have done the best over the last two years. The average household income of the top 1 percent in Alabama rose from $900,400 to $1.05 million - an increase of 16.7 percent. Meanwhile, the average income of the bottom 20 percent inched up from $10,700 to $11,000 - an increase of just 2.8 percent.



"Almost all of the income growth has occurred in the top 1 percent," Gundlach said. "The stock market has done real well, while wages are stagnant."