OUR GOAL:  A tax system that is fair and raises adequate revenues to ensure that we will make adequate investments to move Kentucky forward.

Kentuckians believe in strong communities and taking care of our home place. However, our state has a tax system that doesn’t support these values. The richest people in the state pay a much smaller share of their income than Kentucky’s working and middle class. Because of this inequity, we have a tax system that doesn’t allow us to make the public investments we need to make in education, health care, environmental protection, and public safety. To cap off a decade of budget cuts, Kentuckians have endured another six rounds of budget cuts since the beginning of 2008, taking away more than $800 million from programs like Meals-On-Wheels and after-school programs. Now, we are faced a $1.5 billion shortfall for the next two years. We can’t afford to not act.

KFTC member Jerry Moody working out Bake Sale For The Budget table at the State Capitol Annex building.

As services and programs become increasingly weakened, Kentuckians are losing faith in our government. We need to turn this around. A forward-looking tax structure would uphold the structures and services that we’ve created to keep our families and communities safe and healthy. As Floyd County member Rick Handshoe put it, “to make Kentucky a place where our kids are able to live and work.”

It would also reduce the taxes of many working-class Kentuckians, many of whom have some of the highest tax bills in the nation for their income level. While Kentucky’s middle class would not see much of a change in their tax bill, they would start to see the results of adequately funded state government — reasonable tuition rates, class sizes that don’t swell every year, after-school programs that help little ones overcome their challenges, a local Meals-On-Wheels program with no waiting list, and more opportunities for more people to become and stay healthy, reasonably well off, and educated. Kentuckians would realize, once again, the value of state government.

KFTC and allies support the tax and revenue reforms in House Bill 13, which would provide almost $300 million a year in revenue for schools, health services, and environmental protection, and send about $97 million a year back to about 350,000 Kentucky’s working-class families. In the last session, versions of these policies (excluding the changes to the income tax) passed the House Appropriations and Revenue Committee. Some of them even became part of the House’s budget proposal, but unfortunately the Senate failed to pass any revenue reforms. This year, the legislature and the governor have another opportunity to enact this fair and forward-looking tax system.  Below are the policies in HB 13.

Create a state Earned Income Tax Credit (EITC)

• A state EITC would offer relief to around 350,000 working families who pay a disproportionate share of state and local taxes.
• Twenty-four states including the District of Columbia have enacted state EITCs, including four of our surrounding states (IN, IL, VA, NC.)
• Estimates are that a meaningful state credit of 15% of the federal credit would send around $97 million back to Kentucky’s working-class families, with some families receiving nearly $700 — enough to replace a clutch in the family car.

Modestly adjust Kentucky’s income tax rates

Fair and sensible adjustments in the income tax system will strengthen our investments in education, health services, and public safety.

• Modestly raise the rates on the highest income levels — 1% on taxable income between $75,000 and $90,000 and 2% on taxable income above $90,000.
• At $80,000 of taxable income, the difference is only $50 a year — less than a pair of running shoes.

The LRC estimates that this modest adjustment would generate around $250 million a year.

Expand the sales tax to some services, and roll back an outdated sales tax break

• Our sales tax was made for the manufacturing economy of last century, not the service-based economy of the 21st century.
• Taxing services like limo rides, chartered flights, and country club fees would help bring our tax code up to date. Kentucky taxes just 29 services. Nationally, states tax an average of 55 services. Our surrounding states tax an average of 47 services.
• HB 13 would also update our sales tax by removing an exemption for pollution control equipment. This exemption was on the books to offer an incentive for businesses to buy pollution control equipment. Now that this equipment is mandated by federal law, the incentive is no longer necessary.

The LRC estimates that expanding the sales tax to some services would raise around $113 million a year, and rolling back the outdated incentive would recover around $23 million a year.

Restore Kentucky’s estate tax

• The estate tax helps make sure that trust funds and other inherited assets are taxed.
• Kentucky never chose to lose estate tax revenue; we simply failed to preserve it from the effects of the federal phase-out.
• We can act now to restore it for the values of estates over $1 million.
• Estimates are that this would affect fewer than 350 of the richest estates each year.

The LRC estimates that restoring Kentucky’s estate tax would generate $22 million a year.

History

In 2008 KFTC and a network of allies and supporters worked with Rep. Jim Wayne on the Kentucky Forward Bill. This legislation, House Bill 262 as originally written, called for new investments worth about $250 million in Kentucky’s schools, universities and other public structures, while asking about $89 million less from working families earning less than about $40,000 a year. 

HB 262 was introduced in the House with 11 co-sponsors. Testimony on HB 262 was heard before the Gaming Task Force on January 22.

Two parts of this bill, the estate tax and the state Earned Income Tax Credit (EITC) were pulled out into another bill, HB 566, which was approved by the House Appropriations and Revenue Committee on Feb. 28.  But then House Democratic leaders let the bill die on the floor, refusing to call it for a vote.

A modified version of HB 262, that still included the extension of the sales tax to a limited number of services and added a 25-cent per pack cigarette tax increase, passed out of the House with a vote of 50-45. But the Senate completely re-wrote the bill, changing it to become about $44 million in tax breaks for movie producers and other limited interests. The House refused to go along with these changes and HB 262 died.

Current Status

House Bill 13 is in the House Appropriations and Revenue Committee with 4 co-sponsors. Check its current status here.

Take Action

1. Leave a message for your state senator or representative on the Legislative Message Line (800-372-7181, open 7 a.m. to 11 p.m. Mondays thru Thursdays, 7 a.m. - 6 p.m. on Fridays).  Encourage them to invest in education, health care, higher ed, and public safety by supporting revenue measures that are fair, sensible, and sustainable like the proposals offered by Rep. Jim Wayne in House Bill 13.

2. Become a member of KFTC or donate above your yearly dues.  As a grassroots organization, our strength lies in our membership.  Each new member gives us more clout in Frankfort, and your donations allow us to be the most active grassroots lobbying group in the state.