Bill to lower Kentucky’s individual income tax passes House

Kentucky lawmakers are taking steps to modernize Kentucky’s tax code to be more competitive with other states.

One of those steps came with the passage of House Bill 8, a bill seeking to lower Kentucky’s income tax and move toward a more consumption-based tax model, Friday with a vote of 67-23.

House Bill 8 sponsor Rep. Jason Petrie said Kentucky has seen stagnant population growth for decades in a speech on the House floor. He added the state has just started to see some growth following tax reforms made in 2018, and this legislation continues down that path of tax modernization.

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

The sales tax is also expanded under the bill to certain services, such as nonmedical cosmetic surgery, telemarketing, photography, massages, bodyguards, polling, tattooing, social event planning, investment management services, and much more to pay for the lowering of the income tax.

House Majority Floor Leader Steven Rudy said improving tax policy moves people and that Kentucky is trying to compete with 49 other states for business, workers, and more.

“The work done in this General Assembly in 2018 was always supposed to serve as a starting point,” Rudy said. “Now, changes to the tax code are  continuing in order to achieve the vision of being truly competitive nationally by getting to zero percent income tax.”

This plan, Petrie said, will provide Kentuckians paying the income tax with a 1% raise and put that money back in their pocket.

The Kentucky Chamber released the following statement about passage of House Bill 8:

“The Kentucky Chamber applauds the House for passing House Bill 8. This is a strong step forward in ensuring a competitive tax structure by driving down our income tax to support working families, and attract business, residents, and opportunity. We thank the 67 House members who voted to move Kentucky forward and look forward to now working with the Senate to ensure tax modernization becomes a reality in the 2022 session.”

House Bill 8 now moves to the Senate for consideration in committee. The Senate has proposed a plan to provide taxpayers with an income tax refund of up to $1,000. Senate Appropriations and Revenue Chair Chris McDaniel said he views that bill as separate from a tax reform plan but the Senate has not yet put forward a reform plan.

Stay tuned to The Bottom Line for more updates on tax reform.