Ky. House Republicans unveil bill to eliminate state income tax – 89.3 WFPL News Louisville

Republicans in the Kentucky House unveiled a bill that would reduce and eventually eliminate state income tax, wiping out a major source of government revenue.

House Bill 8, the so-called “Tax Modernization Proposal,” would lower the state income tax from 5% to 4% in 2023, then put in triggers to further reduce the tax until it is completely eliminated. To help pay for that, he would extend the state’s 6% sales tax to 38 previously untaxed services, from parking to servicing refrigerators.

Rep. Jason Petrie of Elkton, sponsor of the bill and chairman of the House Budget Committee, said it would allow Kentuckians to keep more of their income rather than giving it to the government to collect. spend them on their behalf.

“We are confident that state revenues will continue to support a 4% rate over time,” Petrie said. “However, we will see greater benefit from eliminating personal income tax altogether.”

State income tax currently funds about 40% of the state budget. Eliminating it would devastate public funding for schools, health, infrastructure and social services, according to a Kentucky Center for Economic Policy analysis.

Jason Bailey, executive director of the progressive think tank, said even a 1% state income tax cut would cut state coffers by $1.1 billion a year, an amount equivalent to more than Kentucky spends on its public school system.

“What that would do is seriously damage funding for things that benefit us all, schools, health care, infrastructure, and take those dollars and give them to people whose incomes are already skyrocketing.” , Bailey said. “It’s a sweeping bill, it’s a reckless bill that would doom Kentucky.”

Bailey said wealthier Kentuckians would see the greatest benefits from the proposal while Kentucky’s lower classes would see a lower return even if the state cuts funding for vital services.

According to KCEP analysis, the top 1% of Kentuckians would keep about $55,000 a year if the income tax were removed, while the bottom 60% would save between $100 and nearly $1,400. per year.

The poorest Kentuckians — those earning less than $13,000 a year — would save less than $100 a year under the proposal, according to the analysis.

Petrie’s tax proposal would extend state sales tax to services such as taxis and ride-sharing services, AirBnB rentals and entertainment venues. It would also add battery recovery fees on electric and hybrid vehicles and service fees at electric car charging stations.

According to KCEP’s analysis, the revenue-generating parts of the bill would not come close to offsetting state income tax losses.

Republicans have long floated the idea of ​​eliminating Kentucky’s income tax, saying the move would make the state more competitive with places like Tennessee, Texas and Florida, which don’t have an income tax. income tax. There is currently nine states in the United States who do not have income tax.

The concept was defended by former Republican Governor Matt Bevinwho signed a bill flattening Kentucky’s income tax in 2018 and expanding sales taxes to 17 previously untaxed services such as car repairs and pet grooming.

Bailey said states that have eliminated their income taxes have different types of economies with tax bases that can support state revenues. He pointed to the tourism economies of Tennessee, Florida and Nevada, as well as the resource extraction-based economy of Texas.

“So Kentucky doesn’t have any of those things at any level that would be comparable,” Bailey said. “There’s just no way this recipe will come close to working in Kentucky.”

Democratic Rep. Josie Raymond of Louisville said the bill would worsen income inequality and leave lower-income Kentuckians most vulnerable, calling it a “tear in the social contract.”

“The discount I could get under House Bill 8, I can’t even upgrade my van,” Raymond said. “I would much rather leave that money in the general fund and have things that would really benefit my family like paid vacations, or pre-kindergarten or climate protection. I just think it’s so dangerous.

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