House files tax reform proposal to lower individual income tax

As Kentucky faces new financial realities, including budget surplus and record-high inflation, tax reform has become a hot topic among lawmakers. On Friday, Kentucky House Republicans unveiled their tax reform plan to lower the income tax for all Kentuckians.

The proposal, filed as House Bill 8, includes a decrease in the personal income tax from 5% to 4% beginning in January 2023. From there, the plan provides a pathway to potentially drop the individual income tax rate to zero over time. The rate would lower in increments of 0.5 to 1 % per year based on a set of triggers built into the legislation.

This lowering to zero is set to take four to eight years but the plan could be paused based on actual revenue dollars.

To achieve this lowering, the House GOP is proposing broadening the tax base to services that are not currently subject to the sales tax including nonmedical cosmetic surgery, telemarketing, photography, massages, bodyguards, polling, tattooing, social event planning, investment management services, and much more.

The goal of the proposal and the way it has been crafted is to produce organic revenue growth by expanding to these services, often utilized by those with higher incomes, while lowering the income tax which would benefit all Kentuckians.

“Kentuckians, those here and those who will move here, recognize that what remains in your pocket at the end of a day’s work determines how you live. We have been very open about our goal to let people keep more of their hard-earned money rather than collecting it for the government to determine how to spend,” House Bill 8 sponsor Rep. Jason Petrie said in a press release. “Population growth is a necessary component of long-term growth in Kentucky and is affected substantially by our tax structure. It is also critical that we get more individuals into the workforce. We cannot continue to build our economy when more than 40 percent of those who should be working are not. HB 8 incentivizes both by allowing more of the fruits of their labor to remain in their pockets.”  

The Kentucky Chamber of Commerce has been helping to drive conversation about tax reform, releasing two research documents around the subject in recent months. Kentucky Chamber Senior Vice President of Public Affairs Kate Shanks stated the following in response to House Bill 8 being filed:

“The Kentucky Chamber is encouraged to see tax reform legislation filed today. Kentucky must be competitive and significant changes to our tax code are a crucial part of that equation. We agree driving down income taxes to put more hard-earned money back into the pockets of Kentuckians is key to making Kentucky an attractive place to live and work. We look forward to reviewing the details of the bill and continued discussions about bold tax reform that creates permanent change and drives growth in Kentucky.”

Stay tuned to The Bottom Line for more tax reform news throughout the 2022 session.