A lawmaker from Hardin County is hoping Kentucky follows the example of Tennessee and other states that don’t impose an income tax on its residents.
Supporters say transitioning away from an income tax and increasing the state’s sales tax would make Kentucky more attractive to businesses.
Opponents say it would be a boon to the wealthy, while hurting low-income and vulnerable residents.
The effort to move Kentucky away from relying on income tax gained steam in 2018. That’s when Republican Governor Matt Bevin signed into law a massive overhaul of the state’s tax code.
The bill expanded Kentucky’s sale tax to a list of new services, such as landscaping, pet grooming, and dry-cleaning. It also established a flat income tax rate of five percent. Kentucky previously had an income tax rate that ranged from two to six percent.
Republican Rep. Jim DuPlessis of Elizabethtown says that was a good first start.
But he wants Kentucky to take it a step further, and be more like it’s neighbor to the south, Tennessee.
“Their model of a sales tax, and no income tax, is a great thing, and it attracts people to the state. It attracts businesses to their state, and that brings in more money to their state. I want us to see us move towards a Tennessee/Texas/Florida model where there’s straight sale tax, and no income tax.”
But that idea gets pushback from some economists.
“If you are living paycheck to paycheck, as many Kentuckians are, you’re spending all of your income to makes ends, so all of your income is subject to the sales tax, or most of it,” says Jason Bailey, executive director of the left-leaning Kentucky Center for Economic Policy. “If you’re a higher income person, you save a lot of your income, and that portion is never subject to sales taxes in some cases. So, it really shifts the responsibility over to everyday folks, who are already struggling, and lets those people whose stock portfolios are soaring off the hook.”
The move to a “no-income tax, higher sales tax” model had a champion in Gov. Bevin, who pledged to pursue the effort if he was re-elected.
But Bevin lost to Andy Beshear last month, giving the state a Democratic governor who will propose Kentucky’s next two-year budget when lawmakers meet for the 2020 General Assembly.
