Several state House members filed a bill Friday to reform Kentucky’s tax system in an effort to avoid proposed budget cuts to state programs, services and universities.
The measure is designed to boost state revenue by $570 million a year.
“We can’t make the investments needed for Kentucky to thrive unless we modernize a badly outdated and inadequate tax code,” said Rep. Jim Wayne, D-Louisville, who is a primary sponsor of the legislation along with Rep. Tom Burch, D-Louisville. “It’s time to give Kentucky a tax system that properly supports education, law enforcement, roads and infrastructure, environmental protection, health care, and programs to help our state’s most vulnerable citizens.”
The tax reform plan, officially known as House Bill 342, would raise some taxes while lowering others. Sponsors of the legislation say it’s aimed at promoting fairness while building a revenue base designed for today’s service-based economy.
Under the proposal, the state’s cigarette tax would increase by $1.
A proposed state earned income tax credit would remove $115 million of the annual tax burden for the working poor.
A tax on certain services used primarily by the wealthy, such as chauffeured limousine rides, would be implemented to generate an additional $104 million annually.
House Minority Leader Jeff Hoover, R-Jamestown, immediately dismissed the plan as a “massive tax increase.”
“This is what we have come to expect from House Democrats — either they propose borrowing an unprecedented $3 billion or they propose increasing taxes on hard working Kentuckians,” Hoover said in a statement. “Another tax increase proposed by Democrats … no surprises here,” said Hoover.
His comment about borrowing is a reference to a Democratic plan to issue $3.3 billion in bonds to help the financially-strapped teachers’ retirement system.
The tax reform proposal also includes provisions to:
▪ Limit individual income tax itemized deductions;
▪ Make a small portion of retirement income taxable;
▪ Balance the tax disparity between the wealthy and low-wage workers by increasing taxes on top earners;
▪ Repeal the distilled spirits case sales tax;
▪ Apply sales tax and transient room taxes to the total hotel accommodation price;
▪ Freeze the state real property tax rate.
Wayne noted that 13 tax reform studies have been conducted in Kentucky over the years, including one in 2012 produced by a Blue Ribbon Commission on Tax Reform. Most of the proposals in the current tax reform bill are based on the commission’s recommendations.
While there’s widespread belief that tax reform is needed, action on the matter has been delayed for far too long, Wayne said.
“We have no chance of supporting the modern-day needs of our state if we continue to stall on this issue,” Wayne said. “It’s time to give Kentucky a tax system that’s fair, reliable and capable of sustaining long-term progress.”
Lawmakers backing tax reform
Co-sponsors of House Bill 342 include: Rep. Jefferey Donahue, D-Louisville; Rep. Tom Riner, D-Louisville; Rep. Cluster Howard, D-Jackson; Rep. Kelly Flood, D-Lexington; Rep. Joni Jenkins, D-Shively; Rep. Mary Lou Marzian, D-Louisville; Rep. Derrick Graham, D-Frankfort; Rep. George Brown, D-Lexington; Rep. Reginald Meeks, D-Louisville; Rep. Gerald Watkins, D-Paducah; Rep. Darryl T. Owens, D-Louisville; and Rep. Rita Smart, D-Richmond.