FRANKFORT, Ky. (AP) — A key legislative panel on Thursday approved an overhaul of Kentucky’s tax code, introducing a bill to phase out personal income tax and expand sales tax. state to more services.
The House Appropriations and Revenue Committee sent the measure to the full House as lawmakers debate whether to steer tax collections more toward consumption and away from personal income.
Under the bill, the state’s 5% personal income tax rate would be lowered gradually over a period of years with the goal of eventually eliminating the levy. The measure provides for a reduction in the rate to 4%. After that, future tax rate reductions would depend on the government meeting revenue targets.
To broaden the tax base, the proposal would extend the sales tax to a number of services.
The measure sparked philosophical differences Thursday over the structure of the state’s tax code.
“I have always personally believed that the more you tax productivity, the less productivity you will receive,” Republican Rep. James Tipton said in supporting the bill.
“When the tax is consumption-based – sales tax – people can make choices about what is important to them to spend their hard-earned money,” he added.
Opponents argue that the tax overhaul would disproportionately benefit wealthier Kentuckians and could starve the state of the revenue needed to properly fund schools and other essential services.
“I think what works best for states is if we have a progressive income tax where those who can afford to do more, do more,” said Democratic Rep. Lisa Willner.
Every one-percentage-point cut in the personal income tax rate would cost the state just over $1 billion, based on current conditions, said GOP Rep. Jason Petrie, chairman of the committee.
Under the bill, groceries and drugs would remain exempt from state sales tax.
The push to revise the tax code comes as the state is on the verge of a massive revenue surplus. Budgetary and tax measures will dominate the work of the last weeks of the legislative session.
The tax measure that advanced on Thursday is still expected to go to the Senate if it passes the House. Republicans have overwhelming majorities in both houses.