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What Federal Tax Reform Means For Kentuckians

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Kentucky won’t be feeling as much of the effect of the federal tax reform law as most other states. That’s partly because the commonwealth doesn’t combine the standard deduction and the personal exemption.

According to a report from the Tax Foundation, Kentuckians won’t see significant changes in their state tax filings. But they will see that some of the exemptions they’ve previously claimed are more limited now.

Senior Policy analyst with the Tax Foundation Jared Walczak said the federal tax law changes are pro-growth and give states a chance to reform their own codes to become more competitive.

“In many ways this is an opportunity to do tax reform or bring rates down while broadening the bases automatically as most public finance scholars say you should do anyways,” Walczak said.

He said Indiana is already working to reform its tax codes to prevent an increase in taxes for its citizens. The changes in federal tax law will have a small impact on Tennessee given that the state does not have an individual income tax.

He said while he thinks federal tax reform will encourage investment in the U.S., it’s still up to the states to change their own tax codes.  

“States need to make sure their own tax codes are competitive so that when that investment does come into this country that their well positioned to claim it,” he said.

Walczak said a competitive tax code should be neutral and avoid picking winners and losers. It’s unclear if Kentucky lawmakers will take up state tax reform this year.

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