The Kentucky General Assembly passed a revenue measure today that would generate nearly a half of billion dollars in additional money for the state over the next two fiscal years.
It would do that by creating a flat rate for personal and corporate income taxes in Kentucky while expanding the sales tax, said Senate Appropriations and Revenue Committee Chairman Christian McDaniel, R-Taylor Mill. Known as House Bill 366, it passed the House on a 51-44 vote and Senate on a 20-18 vote.
McDaniel said the personal income tax rate would be set at a flat five percent instead of the current brackets ranging from two percent to six percent.
Senate Majority Floor Leader Damon Thayer, R-Georgetown, said lowering the high end of the current personal income tax rate to five percent would put more than $500 million back into people’s pockets per year. It would also make Kentucky the 10th lowest state in personal income tax in the nation, he added.
“This will increase the competitiveness of this state when it comes to attracting jobs following up on the pro-business bills we passed last year that have resulted in the announcement of over 17,000 new jobs and $9 billion of economic impact to this commonwealth,” Thayer said.
McDaniel said the only itemized deductions allowed under HB 366 would be for Social Security income, mortgage income and charitable giving. It would disallow the deductions for such things as medical costs, taxes paid, interest expense on investments, and casualty and theft losses. It would also remove the $10 state personal income tax credit.
Another provision would lower the pension income exclusion to $31,110 from $41,110.
McDaniel said Kentucky’s corporate income tax would also go to a flat rate of five percent instead of the current brackets ranging from four percent to six percent. The inventory tax would also be phased out over a four-year period.
This brought criticism from legislators such as Senate Minority Floor Leader Ray S. Jones II, D-Pikeville.
“This tax plan is a regressive tax plan that is not in the best interest of working Kentuckians,” he said. “Lowering of the corporate tax rate is a giveaway. It is not going to stimulate any investment in Kentucky. It is not fair that this bill shifts the burden to working families and people on a fixed income to cut corporate taxes. That is essentially what it does.”
In the House, Rep. Chris Harris, D-Forest Hills, also stood in opposition to HB 366.
“I’ve heard on this floor many times this session, ‘I like to deal in facts,’” he said. “…Well, the fact is, this bill raises revenue and instead of securing the pensions for our teachers like we ought to be doing, we’re giving corporations a tax break.”
McDaniel said that Kentucky would broaden its tax base by putting a sales tax on certain services labor and services associated with certain repair, installation and maintenance related to personal property, such as a car.
He said the sales tax would also be expanded to other selected services including landscaping services, janitorial services, veterinarian services for small animals, fitness and recreational sports centers, commercial laundries, golf courses and country clubs, dry cleaning, pet grooming, weight loss centers and campgrounds. It would not include barbers and cosmetologists.
The cigarette tax would also be raised 50 cents to $1.10 per pack, under HB 366.
Senate President Robert Stivers II, R-Manchester, said the revenue measure would allow the General Assembly to pass a structurally balanced budget for the first time in two decades while providing vital government functions such education.
House Appropriations and Revenue Chair Steven Rudy, R-Paducah, said HB 366 would modernize Kentucky’s tax structure to both improve personal income and fuel job growth.
“Today is our day to declare that Kentucky is ready to move forward with comprehensive tax reform,” he said. “Today we boldly declare that being at the bottom of the barrel is not good enough, and that the people of Kentucky deserve better. Today is the day that this body will declare that having an average household income 18 percent below the national average is not good enough.”
SB 366 now goes to the governor.