FRANKFORT, Ky. (AP) — A key legislative panel on Thursday endorsed revamping Kentucky‘s tax code, advancing a bill aimed at phasing out the personal income tax and extending the state sales tax to more services.
The House Appropriations and Revenue Committee sent the measure to the full House as lawmakers debate whether to gear tax collections more toward consumption and away from personal income.
Under the bill, the state’s 5% personal income tax rate would be lowered incrementally over a period of years with the goal of eventually eliminating the levy. The measure calls for the rate to be cut to 4%. After that, future income tax rate cuts would hinge on the state 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 tax code.
“I have always personally believed that the more you tax productivity, the less productivity that you’re going to receive,” Republican Rep. James Tipton said in supporting the bill.
“When tax is based on consumption — sales tax — people can make choices about what’s important to them to spend their hard-earned money on,” he added.
Opponents contend the tax overhaul would disproportionally benefit wealthier Kentuckians and could deprive the state of revenues needed to properly finance schools and other essential services.
“I think what works better for states is if we have a graduated income tax where those who can afford to do more, do more,” said Democratic Rep. Lisa Willner.
Every percentage-point drop in the personal income tax rate would cost the state slightly more than $1 billion, based on current conditions, said GOP Rep. Jason Petrie, the committee chairman.
Under the bill, groceries and medication would remain exempt from the state sales tax.
The push to overhaul the tax code comes as the state is flush with a massive revenue surplus. Budget and taxation measures will dominate work in the final weeks of the legislative session.
The tax measure that advanced Thursday would still need to go to the Senate if it passes the House. Republicans have overwhelming majorities in both chambers.
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