Update: The Kentucky Senate has approved a $480 million tax increase by voting to expand the state sales tax to a variety of services.
The Senate voted 20-18 to send the bill to the House of Representatives, which also plans to vote on the measure Monday.
Senate Democrats objected because they said they were shut out of the process and did not have time to read the bill. Republicans said the bill had to pass Monday to preserve their right to overturn any vetoes from Republican Gov. Matt Bevin.
Republican leaders of the Kentucky legislature have unveiled a surprise overhaul of the state’s tax code on one of the last days of this year’s legislative session.
The proposal, which includes both tax increases and cuts, is moving quickly towards final passage in the legislature and would be the first major change to the state’s tax code in nearly two decades.
The bill establishes a flat income tax rate of 5 percent — currently Kentuckians are taxed at rates ranging from 2 percent to 6 percent, depending on income.
It expands the state’s 6 percent sales tax to 17 services like car repairs, landscaping, pet grooming, dry cleaning and country club memberships. It would also raise the per-pack tax on cigarettes by 50 cents to $1.10.
The plan also lowers the state tax exemption for pension income from the first $41,110 earned to the first. $31,110.
The plan would net about $239 million in new revenue for the 2019 fiscal year, which begins on July 1, and $248 million in the 2020 fiscal year according to an analysis released by Republicans.
Thousands of teachers packed the state Capitol on Monday to watch the budget proceedings after lawmakers rushed through a surprise overhaul of the public worker pension system last week.
All 120 school districts are closed Monday — most of the state’s schools are off for spring break, but remaining districts have shut down to accommodate teachers attending the rally.
Lawmakers are set to vote on a two-year budget that cuts most of state government by 6.25 percent in order to set aside $3.3 billion for the state’s ailing pension systems — about 15 percent of all state spending for the next two years.
But the increase in revenue helped budget writers avoid or lessen cuts in some areas.
The budget bill funds public schools at $4,000 per pupil each year — more than the $3,984 proposed by Gov. Matt Bevin but less than the $4,055 that the House wanted.
It also restores state funding for public school transportation and health insurance that was reduced by Bevin in his budget proposal.
The budget proposal preserves cuts to higher education, but Republican budget writers said some of that money would be restored through performance funding.
The bill also includes language that would allow universities to fire faculty, including tenured faculty, “when the reduction is a result of the board discontinuing or modifying an academic program.”