KY should “clean up” the tax code, not cut income tax

Amid talk of state income tax cuts, experts say Kentucky’s tax code reforms should instead focus on eliminating tax breaks for the wealthy and businesses.

the Kentucky Chamber of Commerce and other proponents of income tax abolition say it’s a necessary step to keep businesses.

But if Kentucky were to cut its income tax rate to 4%, it would have to raise the sales tax rate from 6% to 7.4% to make up for lost revenue, according to the Institute on Taxation and Economic Policy.

Jason Bailey, executive director of the Kentucky Center for Economic Policy, points out that tax revenue is critical to ensuring the quality of schools, health care, roads and other public investments that affect quality of life. Instead, he thinks the state should focus on closing the loopholes and eliminating tax breaks for top earners.

“When we clean up the tax code by asking those at the top to contribute and pay what they owe, we are able to invest in things like early childhood education, which we know, pays off in the short and long term for families and the economy,” Bailey argued.

He pointed out that over the past decade, Kentucky has continued to extend tax breaks to businesses that, in some cases, completely exempt them from paying corporate taxes. More recently, in 2019, lawmakers passed a slew of bills reduce corporate taxes.

Bailey noted that sales and use taxes do not replace income tax, as sales tax increases drain a much larger share of family budgets from working-class Kentuckians and low-income households. income.

“So it’s just shifting the responsibility of paying for these things onto people who are already struggling to make ends meet,” Bailey said. “It’s not sustainable for the revenue stream, and it’s not fair.”

Bailey also pointed to the state’s current budget surplus, with billions of additional dollars he hopes will be spent on community resources.

“We’ve had 20 rounds of budget cuts since 2008, and this is our opportunity to reinvest,” Bailey said. “But there’s the potential that we’re giving that away, you know, wasting it, in tax cuts for people at the top.”

A 2020 study of the Institute on Taxation and Economic Policy found that low- and middle-income Kentucky residents pay between 9.5% and 11.1% of their income in state and local taxes, while those with incomes in the top 1% pay 6.7%.

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Written by Nadia Ramlagan for Kentucky News Connections.

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