The Kentucky legislature took its first step to get rid of the state’s income tax when the House released House Bill 8 on Friday. The bill will slowly lower the state’s five percent income tax by one percent each year, with the first drop on Jan. 1, 2023.
“Kentuckians, those here and those who will move here, recognize that what remains in your pocket at the end of a day’s work determines how you live,” said House Appropriations and Revenue Chair Jason Petrie, who introduced the bill. “We have been very open about our goal to let people keep more of their hard-earned money rather than collecting it for the government to determine how to spend.”
At a press conference earlier this month, Gov. Andy Beshear warned against any significant tax reform that would add money to the pockets of corporations and wealthy Kentuckians.
“Our families don’t need this type of ‘reform.’ They need relief,” Beshear said. “So, if we are going to alter our tax structure, let’s do it to address the current inflation and in a way that will help our families. Let’s do it in a way that will make things cost less for all Kentuckians.”
While the bill would slowly lower income tax, it would raise the sales tax or add user fees to many digital products, such as books, ring tones, movies, and digital news products. It would also raise the sales tax on digital platforms such as Uber and Lyft.
“Among my grave concerns with what I’ve read so far is that this would add a six percent service tax to taxi and Uber fees,” said Rep. Rachel Roberts (D-Newport). “Taxis are a lifeline for the working poor, especially as we starve our public transportation systems and more and more people rely on these services to get to work or doctor’s appointments.”
Here is the comprehensive list of services that will see an increased sales tax or a user fee.
– Non-Primary Residential Electric (primary residences would remain exempt)
– Taxi cabs, car rentals, or transportation services like Uber and Lyft
– Temporary Rental Services (AirBnB, VRBO)
– Advertising, Marketing, and Graphic Design Services
– Residential and Nonresidential Security Systems
– Bodyguard and Self-Protection Services
– Process Servers
– Valet and Parking Services
– Pleasure Watercraft Docking
– Entertainment Venues and Event Space Rentals
– Legislative and Executive Branch Lobbying
– Cosmetic Surgery Procedures (non-medically necessary)
– Personal Financial Planning
– Private Mail Services
– Road and Travel Services
– Executive Employee Recruitment Services
– Unsolicited Telemarketing Services
– Public Opinion Research
Petrie said that by implementing the income tax cut, it would put roughly $1 billion into the pockets of Kentuckians.
“Lowering the income tax provides multiple benefits like leaving more money in our local communities,” said Rep. Brandon Reed (R-Hodgenville). “We’re also using this proposal as a tool to grow our workforce and improve the quality of life for all Kentuckians.”
Roberts argued that the cost savings for average Kentuckians wouldn’t be that significant.
“Early calculations show that a 1% decrease in income tax rates would only net out to about $5/week for the average Kentuckian earning around $50,000 a year (Kentucky Center for Economic Policy),” Roberts said. “Most people I speak with would rather see that $5 continue to go to funding our schools, public transportation, lowering college tuition rates, reopening child care centers, and propping up rural hospitals then use it to give the wealthy yet another tax break.”
Across the aisle, Rep. Adam Koenig (R-Erlanger) believes the bill is a responsible way to make Kentucky a more business-friendly state.
“I ran for the legislature largely to make Kentucky a more business-friendly state, and this is one of many policies that have been undertaken to do just that,” Koenig said. “I look forward to supporting it.”