Alabama ranks among top U.S. states in financial hardship, survey finds

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A young mother with a shopping cart grocery shopping for baby products in a supermarket. Census data shows that 41% of Alabama households are struggling to afford everyday expenses, ranking third-worst in the nation amid financial hardship. (Getty Images)

Alabama has some of the nation’s highest percentages of households struggling to afford everyday expenses, according to new data from the U.S. Census Bureau.

The Household Pulse Survey, which collected data from Aug. 20 to Sept. 16, 2024, shows 41% of households in Alabama said they had a somewhat difficult or very difficult time in the week leading up to the survey. Only Kentucky and Wyoming ranked worse than Alabama, at 43% each.

Despite a recent drop in inflation, financial hardship persists for many Alabamians, fueled by low wages, a regressive tax system and the increased cost of essentials like food and health care. Advocates and policymakers were divided on solutions, with some calling for expanded Medicaid and the elimination of the state’s grocery tax, while others push for workforce development and broader tax cuts to ease household burdens.

“We unfairly tax the poor more than we do the rich. So the less you make, the more that you have to pay in our tax system. It’s just a regressive tax system,” said Shakita B. Jones, an instructor of social work at Auburn University focusing on the causes of poverty.

Chris Sanders, communications director at Alabama Arise, a left-leaning nonprofit organization, said state lawmakers can take direct action through policies like completely eliminating the state’s sales tax on groceries.

“State lawmakers can’t control global or national economic trends, but they can and should enact state-level policies to reduce poverty, expand opportunity and improve well-being for the people of Alabama,” Sanders said in a statement.

Alabama remains one of the few states where groceries are subject to a sales tax, which advocates say further strains household budgets. Until lawmakers in 2023 reduced the state tax by 1%, the combined state and local sales tax meant some municipalities charged up to 10% tax on groceries. The 2023 tax cut included another provision to cut the state grocery tax an additional 1% depending on sales tax growth, but advocates argue it is insufficient.

Justin Bogie, senior director of fiscal policy for Alabama Policy Institute (API), a conservative think tank, also supports a full repeal of the state’s sales tax on groceries.

“The grocery tax cut was a good first step in reducing some of these household expenses,” Bogie said.

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Bogie said API also supports broader tax reductions, advocating for individual and corporate income tax cuts, which he believes would put more money in the pockets of Alabamians.

“Instead of putting most of that money back into government, we think that that money should be returned to the people of Alabama through lower tax rates,” he said, adding that a period of surplus revenue provides an opportunity to make tax cuts without compromising funding for public services.

Most state income and sales tax goes into the Education Trust Fund (ETF) budget. Rep. Danny Garrett, R-Trussville, chairman of the House Ways and Means Education Committee, which oversees the ETF, said that while Alabama has some of the lowest overall tax rates in the country, any changes to reduce these taxes must be balanced with the need to sustain education funding.

“We are mindful of our situation,” Garrett said, noting that the Legislature has made efforts to reduce income taxes and other burdens while still addressing funding needs in essential areas like education.

But Jones said that systemic issues tied to Alabama’s tax structure worsen poverty. She said the state’s regressive tax system forces low-income families to pay a disproportionately higher share of their income on taxes compared to wealthier residents.

“There’s a lot of reasons why Alabama is struggling financially, number one because of our tax system and how we tax the poor, and because we do have a regressive tax system,” Jones said.

Jones also expressed frustration with political ideology directing policy decisions, saying that policies from the past and the state’s conservative approach continue to hold back meaningful reforms.

“Political ideology just kind of holds us back from really taking care and serving the people that we need,” she said, describing Medicaid expansion and tax reform as measures that would improve the quality of life for struggling Alabamians.

She also said that “a lot of our issues stem from our historical policies,” and these policies “continue to oppress people.”

State officials have tended to prefer a workforce-centered approach, particularly in raising the state’s workforce participation rate. The number stood at 57.5% labor participation rate in September, according to the Federal Reserve Bank of St. Louis, one of the lowest in the nation. Alabama’s rate has been lower than the nation’s since at least 1976.

Garrett said providing better job opportunities and increasing the workforce participation rate should boost household incomes and reduce reliance on assistance programs.

“If we can get more people in the workforce, that will provide incomes… and address some of the situations” facing Alabama’s working families, Garrett said.

To address poverty in Alabama, Jones believes officials need to look at the generational impact of Alabama’s economic policies. She pointed to how families trapped in poverty often lack access to resources that could help lift them out, such as affordable child care and educational opportunities.

“If we get people back to work and we’re not paying them a living wage, that doesn’t help,” Jones said. “We have to create a more equitable society, and to me, that’s paying a fair wage.”

She also said that increasing workforce participation alone does not address the root issues low-income households face. She sees Medicaid expansion, a long-debated issue in Alabama, as a necessary step to provide health care access and reduce financial burdens for the state’s poorest residents.

“Most people, they go without health care, they go without paying their bills, like utility bills, their basic needs,” Jones said about which expenses families struggle the most to meet.

Sanders also suggested the expansion of programs targeting child hunger and food insecurity. Starting in 2025, Alabama will use federal funding to offer Summer EBT benefits to feed children during the summer vacation. But he mentioned additional measures, such as providing free breakfast for every student in Alabama’s public schools, calling it essential to ensuring students do not start their day hungry. Jones said that food banks have become more accessible to struggling families, but they often don’t provide the most nutritious foods.

“If we’re really serious in this country about strengthening families and helping people, we have to look back, we have to look at where we are now, and we need to look forward,” Jones said.

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