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Gov. Robert Bentley said Monday he is opposed to raising taxes but not necessarily to eliminating some deductions, including one that benefits many Alabama families.
Bentley said elimination of the deduction allowed on state income taxes for federal taxes paid is one idea under consideration to fix a budget shortfall for next year and address long-term funding needs of state government.
Voters would have to approve the change.
"I am not for raising taxes and this actually would not be raising taxes," Bentley said. "It would be taking away some deductions. That is certainly one of the things we'll be looking at."
The General Fund is expected to be about $265 million or more short in fiscal year 2016, which starts Oct. 1.
Elimination of the individual state income tax deduction for federal taxes paid would generate about $434 million a year, according to the Legislative Fiscal Office.
Eliminating the corporate deduction for federal taxes paid would bring in about $88 million a year.
Bentley and the Legislature could not remove the deductions without voter approval. Both would require a constitutional amendment.
The last time a governor sought approval of a major statewide tax increase was in 2003. Almost 1.3 million voters turned out to reject Gov. Bob Riley's Amendment 1 by a two-to-one margin.
The two top Republicans in the Legislature differ on whether removal of the deduction for federal taxes paid should be considered.
House Speaker Mike Hubbard of Auburn is against it.
"I am opposed to removing the federal income tax deduction because it would basically require individuals to pay state taxes on their federal taxes which is money they never even received," Hubbard said in an email.
Senate President Pro Tem Del Marsh of Anniston said he opposes tax increases but considers removal of a deduction to be in a different category.
He said he is in favor of reviewing all deductions to make sure taxpayers, corporate and individual, are treated the same.
"I think the only thing fair to say in my opinion right now is everything is being looked at," Marsh said.
Alabama taxpayers are also allowed to deduct their FICA payments, which go to Social Security and Medicare.
Employees generally pay a total rate of 7.65 percent, 6.2 percent to Social Security and 1.45 percent to Medicare.
Eliminating the FICA deduction would raise $260 million in state revenue, according to the Legislative Fiscal Office.
Unlike the other two federal tax deductions, it would not require a constitutional amendment.
The Legislature has resorted to borrowing and other temporary measures to patch the General Fund in recent years.
In 2012, voters approved a $437 million transfer from the Alabama Trust Fund. That money will be exhausted this fiscal year.
Another $63 million in gasoline taxes intended for road and bridge projects also went into the General Fund, Bentley said.
The state owes the federal government more than $100 million for overpayments to state programs based on faulty state calculations, Bentley said. That's on top of the expected shortfall of $250 million or so.
Bentley and Republican leaders say they have trimmed the cost of state government by about $1.2 billion dollars annually since Republicans took control of the Legislature in 2010.
Much of the savings has come in personnel costs -- pension reforms, fewer state employees and a freeze on merit raises that is now lifted.
Bentley acknowledged that raising revenues would hurt some people. But he said elimination of some deductions could allow lower tax rates in other areas.
"I would like to look at some things like the grocery tax and whether or not we should be charging that," Bentley said.
State Rep. John Knight, D-Montgomery, has for many years proposed eliminating the state sales tax on food and replacing the revenue by eliminating the deduction for federal taxes paid.
