#KYGA week 8: Covid state of emergency to end, tax reform introduced (finally!)
Though the eighth week of the 2022 legislative session was a short one - legislators took Monday off for President’s Day - much transpired.
Thanks to the state Senate, Kentucky finally has an end date for the state of emergency issued by Gov. Beshear in March of 2020 in response to the COVID pandemic. Sen. Donald Douglas, R-Nicholasville, sponsored a resolution that would set March 7, 2022, as the termination date for the governor’s declared state of emergency. As co-sponsor Sen. Adrienne Southworth, R-Lawrenceburg, said, this bill is "two years long past due.”
The state House finally introduced a long-awaited tax reform bill. The legislation reduces the individual income tax rate from 5% to 4% beginning in 2023 and has an automatic triggering mechanism that would continue to lower income taxes as the economy - and the resulting tax revenues - grow until the income tax is eventually eliminated. Though it doesn’t raise corporate or sales taxes, it does expand the state sales tax to cover additional businesses to fill the gap caused any initial revenue loss from lowering income tax rates. While we applaud the House for taking this bold measure, the expansion of sales tax is unnecessary considering the state is sitting on a surplus of federal COVID cash.
Because of the state’s surplus, the Senate is proposing a tax rebate in the amount of $500 per individual and $1000 per joint filing providing the individuals paid at least that amount in income taxes in 2020. Those who paid taxes under $500 would receive a refund of the tax liability reported on their returns.
After about two and half hours of debate on the Senate floor, the Teaching American Principles Act, sponsored by Sen. Max Wise, R-Campbellsville, passed by a vote of 28-8. Though critics have tried to label this bill as anti-critical race theory mirroring legislation filed in the state House, it actually addresses the significant gaps in Kentucky’s social studies standards. In a September 2020 Bluegrass Institute publication, Preserving History, BIPPS education analyst Richard Innes reports that the current standards lack key events and figures important to America’s history. If passed by the House, Sen. Wise’s bill would significantly enhance the current inadequate standards.
Often, millions of taxpayer dollars are used in giving economic incentives to large companies and then once the deal is done, there’s little follow up on if those dollars were a sound investment or just a drain on taxpayers and the issue is forgotten. One that hasn’t been forgotten is $15 million in appropriations granted to Braidy Industries to construct an aluminum manufacturing plant. Five years later there’s still no factory.
Calling it “a thorn in the side of the commonwealth for quite a while” Sen, Chris McDaniel, R-Taylor Mill, sponsored a bill to end the ability for the Cabinet for Economic Development to keep extending this contract and requires full repayment of the $15 million back to the state by the end of the year. The bill passed the full Senate and moves to the House.
House Bill 248 prohibits tax dollars from being used to challenge the constitutionality of any legislative act of the General Assembly, except in the case of the Attorney General who’s granted this duty by law. The bill passed the full House and if passed by the Senate, it would stop the governor and other constitutional officers from using your money to sue the legislature.
Lastly, House Bills 475 and 476 passed the full House and are moving on to the Senate. The bills would expand the type of taxes local governments can collect currently not allowed by Kentucky’s Constitution. At present, local governments receive the bulk of their revenue through occupational and property taxes.
The goal of sponsor Rep. Michael Meredith, R-Oakland, is to move cities towards taxing consumption over productivity by allowing them to create new taxes such as a local sales tax. That’s certainly a worthy goal and one BIPPS would normally support. However, there’s no guarantee that if cities can add a sales tax there will be any reductions in occupational and property taxes. Instead, these changes will likely add to overall tax burden of Kentuckians. Instead of promises by the General Assembly to address this in future sessions, adding language to the current proposed legislation to require decreases in productivity taxes are necessary to assure taxpayers that this effort won’t result in higher taxes.
The legislative update is comprised by Sarah May Durand, director of government affairs for the Bluegrass Institute for Public Policy Solutions. She can be reached at sarahmaydurand@freedomkentucky.com.