Personal Taxes

Jim Waters: Flat charges work for tithes, taxes; HB eight provides cheap strategy on personal earnings tax

House Bill 8 offers a responsible approach for eventually eliminating Kentucky’s punitive personal income tax, using one-time budget-surplus dollars to cut the tax’s rate from 5% to 4% in 2023 and then ensuring adequate revenues exist before future cuts are triggered.

The bill makes up some of the revenue by expanding the state’s sales tax to services deemed “nonessential” like watercraft docking and cosmetic surgery.

Opponents desperate to stop this tax-reform train disingenuously compare HB 8 to events in other states that failed to adequately cover revenue drops caused by lowering income taxes.

Jim Waters

Fortunately, these big-government types for whom a shrinking pie seems the only possible option are in the minority – at least when it comes to tax policy.

Of the 90 House members who voted to pass HB 8 to the Senate, 67 said “yes” to eventually eliminating the personal income tax, thus taking an important step toward growing the pie for all Kentuckians.

Still, tired class-warfare arguments about taxes were on full display during KET’s recent “Kentucky Tonight” forum on the state budget and tax policy.

Lexington Democratic Sen. Reginald Thomas said “there’s something wrong” with cutting personal income tax rates next year because some will get larger dollar-amount breaks than others.

Thomas said the 1% tax break will result in only $470 more for Kentuckians who make the state’s median income while providing the wealthier with thousands of dollars in benefits.

“This is intentional on your part, Renee, to create this budget so that we can give tax benefits – and I mean the benefit – to your wealthier, higher-income individuals,” Thomas said to “Kentucky Tonight” host Renee Shaw, while pointing to fellow Republican panelists Sen. Chris McDaniel of Ryland Heights and Elkton Rep. Jason Petrie – budget chairmen in their respective chambers.

Petrie schooled Thomas in response, explaining how determining whether a tax policy is fair must be considered in terms of percentages rather than actual dollar figures.

Since we all make different amounts, “the amount we’re paying in or the amount we would get back are all different in absolute dollar figures, but we’re all putting in and getting out the same percentages, if it’s a flat five to four [percent reduction],” Petrie instructed.

“So, when you walk into a church and you do a tithe at 10%, it’s 10% regardless,” Petrie continued. “It doesn’t matter how much you make or not. … For me, the fair way of looking at something is that percentage which cuts across all lines.”

A flat percentage plan works for God; shouldn’t it work for government, too?

But even from the perspective of absolute dollars, Petrie says he’s always befuddled by the narrative that the wealthy aren’t paying enough into the system.

“They’re paying too little going in, but when the same amount comes out, it’s too much?” hey wondered “I can’t square that.”

Neither could McDaniel reconcile with fellow panelist and Covington Democratic Rep. Buddy Wheatley’s assertion that Gov. Andy Beshear’s trivial suggestion to reduce the state’s sales tax from 6% to 5% for one year would somehow help working Kentuckians.

Food, medicine and home utilities – products and services considered essential – are already exempt from Kentucky’s sales tax and no proposal would dare include them now, considering the rapid rise of inflation and sticker shock at the gas pump.

Instead, as the senator from Northern Kentucky noted, reducing the sales tax would “even more so … benefit those who are buying more goods that have taxes on them.”

At one point in the discussion, Wheatley admits that “our tax system has been in place for a long time and it needs some modernization,” and yet offers no concrete ideas, a frequent occurrence among the political left in Frankfort.

For too long, the heavy burden borne by Kentucky taxpayers has stagnated our state’s economic development and competitiveness by discouraging growth and productivity.

A small visionless minority must no longer be permitted to stop movement on thoughtful, proven policies to change that unacceptable scenario.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.

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