‘Give it to the people.’ Senate proposes income tax rebates up to $500 per Kentuckian
Senate Republicans added their own proposal to a growing list of tax relief ideas on Thursday, unveiling a plan to rebate up to $500 in state income taxes to inflation-weary Kentuckians later this year.
The Senate budget committee voted unanimously to approve a rewritten version of Senate Bill 194 so that it now includes a $1.15 billion, one-time tax rebate. Kentucky’s state budget is expected to close the fiscal year June 30 with a $1.9 billion surplus, so the plan leaves $800 million to spare, Senate budget chairman Chris McDaniel said.
“The biggest issue confronting everyday Kentucky families is inflation,” McDaniel, R-Taylor Mill, told reporters after the committee hearing.
“It is in everything that we do, from our fuel to our rent to everything we spend money on right now. The average Kentuckian has seen about a $267 a month increase in their cost of living. This should begin to do some good work to help offset that,” McDaniel said.
The Consumer Price Index rose 7.8 percent from January 2021 to January 2022 across the American South, which includes Kentucky, according to the U.S. Bureau of Labor Statistics.
Democratic Gov. Andy Beshear recently signed an executive order freezing the property tax on motor vehicles, which was expected to rise as much as 40 percent given the inflation-charged hike in vehicle prices. He also has proposed, with House Democrats, a reduction in the state’s sales tax from 6 percent to 5 percent.
A spokeswoman for Beshear said Thursday that he “will carefully review any proposal,” but he has not yet received a copy of the Senate tax rebate plan.
Between the two plans, the Senate’s and Beshear’s, the governor’s is likely to reach more Kentuckians, said Pam Thomas, a state budget analyst for the Kentucky Center for Economic Policy in Berea.
About 705,000 of the poorest Kentuckians do not pay a state income tax, according to an analysis by KCEP, so they wouldn’t qualify for the rebate. Retirees living on Social Security and pension income are largely shielded from state income taxes in Kentucky and likewise would see little to no rebate.
But everyone who spends money in Kentucky pays the sales tax, Thomas said.
“When you look at who pays the sales tax in proportion to how much money they make, it falls the heaviest on poor people, because they’re spending most of the money they earn,” Thomas said.
That said, she added, “None of this is very targeted. These plans are blunt instruments meant to deal with inflation, which is a difficult problem that state government just can’t do very much about.”
Meanwhile, Republican leaders in the GOP-controlled legislature have expressed interest in making broader changes to the state’s tax code that would lower or even eliminate the income tax while raising the sales tax Kentuckians pay on many goods and services.
Asked about the Senate’s tax rebate proposal Thursday, House Speaker David Osborne, R-Prospect, said: “We certainly can rally around the idea of allowing taxpayers to keep more of their hard-earned money. However, our mission in the House continues to be long-term, meaningful tax modernization that benefits Kentuckians for generations.”
The Senate bill would set aside excess state revenues in an account to be called the individual income advanced tax credit disbursement fund. From July through October of this year, the Kentucky Revenue Department would draw on the account to send rebates to Kentuckians of up to $500 individually or up to $1,000 per household, depending on the size of their 2020 state income tax payments made last year.
“If you were a household that paid $750 in personal income tax last year, then by the end of the summer, you will have a refund for that whole $750,” McDaniel explained Thursday. “If you are a household that paid over $1,000 in Kentucky income tax last year, you will receive a refund of $1,000.”
Members of the Senate budget committee all praised the plan. Sen. Stephen Meredith, R-Leitchfield, said many Kentuckians will spend the rebate, contributing to their local economies and adding to state sales tax revenue.
The only note of caution came from Sen. Danny Carroll, R-Benton, who said a case could be made to spend the $1.15 billion on the state’s pressing needs, such as more quickly paying down its $26.9 billion in public pension debt.
“Looking at all the struggles we have in the commonwealth, there’s an argument toward investing in the future,” Carroll said. “And then there’s an argument that is very sound, which is to give it to the people who gave it to us, at a time when they need it drastically and at a time when we can do so. And that is a valid argument.”
The bill proceeds to the full Senate.
This story was originally published February 24, 2022 at 12:51 PM.
