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Kentucky Attorney General Coleman moves to block Hazard’s restaurant tax, calls it ‘unlawful’

Jack Brammer — Mon, 26 Aug 2024 18:30:19 +0000

Hazard, the Perry County seat, on March 26, 2024. (Photo by Austin Anthony)

The Eastern Kentucky city of Hazard is facing another legal obstacle in its effort to begin collecting a restaurant tax.

Russell Coleman

Attorney General Russell Coleman is appealing a Franklin Circuit Court order that said Hazard was eligible to? pursue the tax. He called it “an unlawful tax” for the city of about 5,200.

The restaurant tax, created by the state legislature in 1980, is levied in about 50 of Kentucky’s 418 cities on retail sales of food and beverages in all restaurants in the city. The tax rate is not to exceed 3% and revenue from it is to be used to promote tourism.

Hazard sued the state, claiming it was being discriminated against by not qualifying to enact the tax. Franklin Circuit Judge Phillip Shepherd last May ruled in favor of Hazard, opening the door for it and other communities to join the list of those imposing the tax. He ordered the Governor’s Office of Local Government to include on the list of cities eligible to impose the restaurant tax “all similarly situated cities” under the population of 8,000 like Hazard.??

At the request of Hazard, Shepherd amended his order on Aug. 15 to say it applies only to the city of Hazard “and has no broader application (to other cities) because this suit is not a class action suit.”??

The judge also deleted his previous requirement that the Governor’s Office of Local Government must include a list of other cities eligible to impose the restaurant tax.

Ed Jones, a Paducah attorney who is representing Hazard, said the city sought the amended order. “Ours was not a class action suit. We thought it should only apply to Hazard and the judge agreed with us. We talked to some cities about joining us earlier but they decided not.”

Other cities interested in imposing the restaurant tax now must start their own legal challenge if they want to pursue it, he said.

Morgain Patterson, director of municipal law for the Kentucky League of Cities, agreed.

She said the judge’s order last spring purported “to expand the number of cities that can assess the restaurant tax on a prospective basis, but the language of the ruling is unclear as to which cities that may include, except that it specifies the city of Hazard is eligible.”

“Now the judge has dropped from his initial order any other city besides Hazard from seeking eligibility for the tax,” she said late last week.

Hazard Mayor Donald “Happy” Mobelini

She said the judge’s initial and amended orders “preserved the right of cities that currently assess a restaurant tax to continue to do so.”

Shepherd’s amended order on Aug. 15 was good news for Hazard until Attorney General Coleman a few days later decided to appeal Shepherd’s ruling to the Kentucky Court of Appeals.

“We were ready to go with the tax but the attorney general’s appeal has stopped it for now. We hope this is only temporary and we can proceed with the tax,” said Hazard Mayor Donald “Happy” Mobelini. “I really don’t understand the reason for the appeal.”

Coleman said in a statement, “The Attorney General’s office will continue to defend the statute and oppose attempts to impose an unlawful tax.”

In his appeal filed Aug. 19, Coleman said allowing Hazard to implement a restaurant tax now is “a recipe for confusion given that this court (the Court of Appeals) might reverse the circuit court’s judgment.”

He said the appellate court should stay — or put on hold —? the circuit court’s judgment while the state’s appeal is continuing.?

Neither Gov. Andy Beshear or the state Department for Local Government were parties in the lawsuit.? Both were dismissed by an agreement to follow any court order entered in the case, said department spokesman Logan Fogle.?

Franklin Circuit Judge Phillip Shepherd

?In his ruling last spring, Shepherd took issue with parts of a state law — KRS 91A.400 — that say which cities may impose the tax.

Before 2015, Kentucky’s cities were divided into six classes based on their population at the time of classification. There were more than 400 classification-related laws on the books that affected issues like public safety, alcoholic beverage control and revenue options.

After Jan. 1, 2015, that classification of cities was changed, making Louisville and Lexington 1st-class cities and others home rule class.

The amended restaurant tax law allowed the state Department of. Local Government to maintain a list of “authorized cities” that as of Jan. 1, 2014, were classified as cities of the 4th- or 5th-class.

The law said in addition to a 3% transient room tax placed on lodging, the legislative body in an authorized city could levy a tax on tourism.

Shepherd said the restaurant tax law makes an unconstitutionally arbitrary distinction of cities eligible to enact the restaurant tax based on population and classification status on an arbitrarily chosen date, Jan. 1, 2014.

The judge added that the law “fails to provide a pathway to correct the misclassification of cities like Hazard, whose population has always met the statutory criteria for belonging in the 4th class (with the authority to enact the restaurant tax) rather than the 3rd class.”

But Shepherd declined to hold all of the law unconstitutional, especially in light of the financial reliance some cities have on the tax.

He noted that many tourism projects have been funded by cities authorized to levy the restaurant tax and that many bonds are financed using proceeds generated by the tax.

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Fiscal path clear for another cut in Kentucky’s income tax, lawmakers hear

Liam Niemeyer — Wed, 21 Aug 2024 21:06:12 +0000

The Budget Reserve Trust Fund is projected at $3.5 billion by the end of fiscal 2026 — about 21.9% of General Fund revenues. (Getty Images)

Kentucky’s state budget director told lawmakers Wednesday that fiscal thresholds established by the GOP-dominated legislature before the state income tax can be lowered have been met at the end of this fiscal year.?

That means Kentucky lawmakers are likely to vote to reduce the state’s income tax rate by another half-percentage point to 3.5% during the 2025 legislative session, which would then go into effect at the start of 2026. That anticipated income tax cut is a part of a series of pending income tax cuts of a half percent set in motion by landmark tax legislation passed by state lawmakers in 2022.?

Sen. Chris McDaniel (LRC Public Information)

Kentucky Senate Appropriations and Revenue Committee Chair Chris McDaniel told the Lantern that lawmakers have “worked diligently” toward hitting the fiscal triggers to lower the income tax.?

“The receipts were great last year and the spending was restrained, which is the combo that we were looking for back in the day when we wanted to go with this trigger scenario,” McDaniel said.?

Democrats and a coalition of advocacy groups have previously pushed against Republican-led efforts to lower the state’s income tax eventually to zero, a goal backed by the Kentucky Chamber of Commerce. But Republican legislative leadership told the Lexington Herald-Leader earlier this summer the state’s income tax rate may not reach lower than 3%. Kentucky House Speaker David Osborne, R-Prospect, told the newspaper in May the state could have to significantly restructure taxes — such as by raising the sales tax — to go lower than a 3% rate.

One of the two fiscal triggers to lower the income tax rate was not met at the end of the previous fiscal year, meaning the legislature could not lower the income tax rate during this year’s regular session. At that time, McDaniel said a “successful implementation of policy” had balanced a desire to lower the income tax with recognizing the need to fund government services.?

The two fiscal triggers established by the legislature to lower the income tax rate are based on revenue going into the Budget Reserve Trust Fund, known as the “rainy day” fund, and revenue going into General Fund revenues:

The rainy day fund balance must be at least 10% of what total General Fund receipts were in the fiscal year that just ended.?
Total General Fund receipts for the year just ended must have exceeded General Fund spending by at least the amount that it would cost to cut the income tax rate by one full percentage point.?

In this year’s legislative session, researchers with the left-leaning think tank Kentucky Center for Economic Policy said state lawmakers moved the goalposts of the landmark tax law establishing the income tax cut triggers, thereby making it easier for the income tax rate to be lowered. These researchers say lawmakers did so by making sure billions of dollars in spending from the Budget Reserve Trust Fund didn’t count toward General Fund receipts that could have blocked another income tax cut.

Jason Bailey

Jason Bailey, executive director of KCEP, told the Lantern on Wednesday that while he appreciates hearing Republican leadership potentially reconsidering eliminating the income tax, any income tax cut is concerning because of its significance as a revenue source. If the relatively strong economy turns south, he said, that could potentially mean budget problems with a reduced income tax to rely on.?

“Each time they cut a [percentage] point, it raises questions about, ‘How are we going to pay for that?’” Bailey said.? “In addition to the economy being strong overall, the national economy and still seeing the pandemic spending flow through … some other unique characteristics … led to a lot of revenue this year, but doesn’t necessarily mean moving forward (revenue) will continue to be as strong.”?

McDaniel said funding used from the Budget Reserve Trust Fund was “never contemplated as being expenditures that otherwise count against these triggers,” saying monies from the fund were specifically one-time spending and not recurring expenditures.?

“We just had to clean up definitional items to allow it to be used in that way,” McDaniel said, characterizing the think tank as “grasping at straws.”?

The Republican state senator added he shared Osborne’s sentiment that additional income tax cuts below a 3% rate would be more difficult, but he believes lowering the income tax further wouldn’t be impossible.?

“As we see the final impact of these actions, which are still years away, we’ll really begin to make those assessments and have the conversations at that time,” McDaniel said.?

Budget Director John Hicks in his presentation to the Interim Appropriations and Revenue Committee said the Budget Reserve Trust Fund is anticipated to sit at approximately $3.5 billion by the end of fiscal year 2026 given monies lawmakers have budgeted into the fund and one-time allocations out of the fund. That amount would be about 21.9% of General Fund revenues for fiscal year 2026.?

Hicks pointed out for fiscal year 2024, revenue from individual income taxes and revenue from sales and use taxes were about the same for the first time at about $5.8 billion. Income tax revenue had declined 0.6%, and sales tax revenue had increased by 4.1% after three consecutive fiscal years of double-digit increases in sales tax revenue. The income tax and sales tax each made up approximately 37.3% of General Fund revenues, making the two revenue sources nearly three-fourths of the General Fund revenues.

Study says undocumented immigrants paid almost $100 billion in taxes

Casey Quinlan — Wed, 31 Jul 2024 00:17:58 +0000

Texas National Guard soldiers stand on patrol near the bank of the Rio Grande on April 2, 2024 in El Paso, Texas.?A new study shows that undocumented immigrants paid nearly $100 billion in federal, state, and local tax revenue in 2022. The findings run counter to anti-immigrant rhetoric that immigrants who inter the U.S. illegally hurt social programs. (Photo by Brandon Bell/Getty Images)

A new study shows that undocumented immigrants paid nearly $100 billion in federal, state and local tax revenue in 2022 while many are shut out of the programs their taxes fund. The findings run counter to anti-immigrant rhetoric that undocumented immigrants are “destroying” social programs.

In 40 states, undocumented immigrants paid higher tax rates than the top 1% of the income scale in those states, according to a study released Tuesday from the Institute on Taxation and Economic Policy, a left-leaning, nonprofit think tank.

The study, which uses estimates of undocumented immigrants’ tax contributions as of 2022, shows those totaled $96.7 billion that year. Study authors also found that undocumented immigrants would contribute $40.2 billion more per year in federal, state and local taxes if all of the undocumented population had access to work authorization. The Institute on Taxation and Economic Policy reasoned that this boost would come from higher wages associated with employment authorization and easier compliance with income tax laws.

The report also shed further light on the tax revenue provided by undocumented immigrants on the state and local level. Undocumented immigrants are paying 46% of their state and local tax payments through sales and excise taxes. Six states — New Jersey, New York, California, Florida, Texas, and Illinois — were able to raise more than $1 billion each in tax revenue from undocumented immigrants, the nonprofit said.

Undocumented immigrants pay property taxes and sales taxes, and federal payroll taxes taken from their wages, as well as income tax returns using Individual Taxpayer Identification numbers. Despite those payroll taxes funding Medicare, Social Security and Unemployment Insurance, undocumented immigrants are not eligible to enroll in and receive regular benefits from these social programs. They can also face barriers to getting tax refunds, including getting scammed by unscrupulous tax preparers who target immigrant communities, said Jackie Vimo, senior analyst of economic justice policy at the National Immigration Law Center in a media call on the report.

“There are tons of laws that prevent undocumented workers from getting benefits…” said Richard C. Auxier, a principal policy associate at the Urban-Brookings Tax Policy Center, a nonpartisan think tank that was not involved in the study. “…They get a lot of political attention. At the end of the day, they’re just normal people paying normal taxes.”

Alexis Tsoukalas, senior policy analyst at Florida Policy Institute, a nonprofit focused on economic mobility for Floridians, told reporters on Monday that she was struck by how much the state collected from undocumented immigrants in taxes compared to the wealthiest in the state. The current tax rate for undocumented immigrants in Florida is 8% compared to the top 1% of the state at 2.7%.

“This means hundreds of thousands of everyday people are contributing more than their share to public services they cannot even access meanwhile those with the most to give and the most to benefit contribute the least,” Tsoukalas said.

The study was released in the backdrop of a political climate where states have passed laws to arrest people who they suspect of entering the U.S. illegally, which has been a federal power,? the Biden administration announced an executive action to allow for the deportation of many asylum seekers without processing their claims, and the 2024 Republican Party platform promises the “largest deportation operation in American history” if former President Donald Trump is reelected over presumptive Democratic nominee Kamala Harris. Tax policy will also be front and center for Congress and the White House next year as provisions of Trump’s tax law, passed in 2017, are set to expire.

Aside from the human cost of deportations on families, policy experts and researchers are making the case that undocumented immigrants are a boon to the economy, making it an economic cost as well. Immigration and economic experts who spoke about the significance of the report on Monday highlighted the Congressional Budget Office’s July report on the rise in immigration and its effects on the economy and budget, which found that this increase in immigration would add $1.2 trillion in federal revenue from 2024 to 2034.

Carl Davis, research director at the Institute on Taxation and Economic Policy, said there are economic ripple effects to consider in the deportation of undocumented immigrants in the U.S. beyond taxes.

“If you deported someone and they’re no longer making taxable purchases in their community, that number would reflect a reduction in their sales tax payments to the community but it wouldn’t capture that second ripple effect of the business has less profits because they have fewer customers,” Davis said in a media call on the study.

Auxier said that researchers have found children in an undocumented immigrant household are receiving education benefits that could be larger than the tax payments of the lower income working adults, but that this is more of an income issue than a specific immigration issue. The other side of that coin, Auxier notes, is that in the future, undocumented households may in fact give back more than they received.

“Those same studies tend to note that if the children go to school and they then go get jobs, now the American household is giving more than it got because the parents came here, worked, paid into Social Security, Medicare, and didn’t get any benefits,” he said. “The kid went to school and then they got a job and then they started earning enough money that they were a net contributor.”

Policy experts also pointed to a labor shortage — 8.1 million job openings and 6.8 million unemployed workers — as a reason to embrace the economic contributions of undocumented immigrants. South Dakota, North Dakota, Maryland, Vermont, Maine, and South Carolina are some of the states facing the greatest labor shortages, according to a Washington Post analysis of Bureau of Labor Statistics data.

“Immigrants are already filling that [labor] gap and if we have mass deportations where millions of immigrants are torn from their family members and the country they have made home, we will not only have the human impact of this but we’ll have a severe effect on the economy and available workforce,” said Vimo of the National Immigration Law Center, a group that focuses on racial, economic and social justice for low-income immigrants.

Healthy coincidence? Kentucky’s adult smoking rate, cigarette tax collections decline

Melissa Patrick, Kentucky Health News — Tue, 16 Jul 2024 09:50:38 +0000

Kentucky has the nation's highest rate of lung cancer incidence and death. Nearly 9 out of 10 lung cancer deaths are caused by smoking cigarettes or secondhand smoke exposure, says the U.S. Centers for Disease Control and Prevention. (Getty Images)

Increasing state cigarette taxes has proven to be an effective policy to decrease smoking rates, and it appears that is also true in Kentucky.

Nearly 30 percent of Kentucky adults smoked in 2011, two years after the legislature had doubled the cigarette tax to 60 cents a pack. Following a 50-cent increase to $1.10 in 2018, the state’s adult smoking rate fell to 17.4% in 2022, the last year for which a rate is available.

Shannon Baker, the American Lung Association’s advocacy director for Kentucky and Tennessee, said that while she could not point to something definitive to explain why Kentucky’s smoking rate has been decreasing, as has also been the case in the nation, she could speak to the impact of raising cigarette taxes:

“When taxes increase, smoking rates decline. We should take advantage of that, for goodness sake, and increase the cigarette tax in Kentucky by at least $1 and then tax all other nicotine products at parity with the cigarette tax.”

After the initial boost in cigarette-tax revenue from the rate hikes in 2011 and 2018, revenue from the tax declined 24% from 2019 to 2024.

The legislature increased the tax to 30 cents from 3 cents in 2005, but smoking rates before 2011 should not be compared with those after that because of a change in survey methodology, says the Behavioral Risk Factor Surveillance System, a continuing federal-state poll of Americans’ habits.

Source: Kentucky Health News

Baker stressed that its important to take advantage of all policies that are known to decrease smoking. Beyond raising taxes, she said it’s important to fund the state tobacco-control program and enforce the law against underage sales, which she said would result in fewer youth becoming addicted to nicotine and growing up to be lifelong smokers, and all the health issues that come with that.

The new report on state General Fund receipts for the fiscal year that ended June 30 showed a 1.5% increase in receipts from other tobacco products, such as electronic cigarettes or vapes.

Asked about the impact of vaping on decreasing smoking rates, Baker focused her comments on young people, who are more likely to vape than smoke.

“We really have to get a handle on this youth vaping problem,” she said, noting that Kentucky is one of about 10 states that doesn’t require tobacco retailers to be licensed. “We don’t even know where all of these shops are in order to enforce the law against underage sales.”

Baker added, “We really need a better method of enforcing the law against underage sales. And what that looks like is licensure and routine regular enforcement opportunities that result in significant penalties all the way up to license suspension and revocation, for scofflaws that routinely violate the law. We’re not talking about any onerous policy on those who are compliant with the law. We’re simply talking about those who violate the law and violate it routinely.”

The 2023 Youth Risk Behavior Survey found that 5.3% of Kentucky high school students said they currently smoked cigarettes and 19.7% said they used electronic vapor products. Among middle schoolers, 2.2% said they smoked cigarettes and 12.8% used a vapor product. “Current use” is considered having used a product on at least one day during the 30 days prior to the survey.

Asked if she thought the new law that bans retailers from selling unauthorized vapor products would be effective in decreasing youth vaping, as it has been touted to do, Baker said, “House Bill 11 turned into . . . an industry market-share grab and nothing more; it is not a protection for kids. What we saw was a bill passing that, in effect would, if it’s upheld in court, remove certain products, primarily imported products, from the market shelves, which in and of itself is not a bad thing. But, it certainly doesn’t protect kids who will just switch to the other products that remain on the shelves.”

The law has been challenged in court. If it holds up, it will go into effect in January 2025.

Baker also wanted to make sure people know that the funds for the state’s tobacco control program come from the Master Settlement Agreement with cigarette manufacturers, not from the cigarette tax.

“We need to increase funding for tobacco control because … Kentucky has the highest lung-cancer incidence and mortality rates in the entire nation and most of that is due to our high smoking rate,” Baler said. “So even though the smoking rate may be declining, it isn’t gone. It isn’t good, even.”

This story is republished by Kentucky Health News

Attorney general sides with GOP lawmakers on voiding some of Beshear’s line-item vetoes

McKenna Horsley — Tue, 28 May 2024 16:04:49 +0000

The Kentucky Capitol in Frankfort on Feb. 27, 2024. (Kentucky Lantern photo by Arden Barnes)

Kentucky Attorney General Russell Coleman’s office ruled Tuesday that some of Gov. Andy Beshear’s recent line-item vetoes are void, upholding the General Assembly’s move to make all of House Bill 8 a law.?

At the end of this year’s legislative session, Beshear issued two line-item vetoes on HB 8, a Republican-backed bill with wide-ranging provisions affecting state revenue, including paving the way for income tax cuts in future sessions.?

However, Republicans in the legislature did not attempt to override the vetoes, instead calling them unconstitutional and forwarding the bill to the secretary of state’s office for filing. Kentucky governors may issue line-item vetoes to appropriations bills, and House Bill 8 was not an appropriations bill, lawmakers argued.?

The attorney general’s opinion, written by Executive Director of the Office of Civil and Environmental Law Aaron J. Silletto, agreed with that distinction. HB 8 was about “generating income for the state and local governments, not spending public funds,” Stiletto wrote.

“The Governor’s attempted line-item vetoes of House Bill 8 were nullities, as they exceeded his constitutional authority,” the opinion says. “Therefore, those portions of the bill against which the Governor purported to use his line-item veto became law with the rest of the bill when it was filed with the Secretary of State on April 12, 2024.”?

James Hatchett, a spokesperson for the governor’s office, said the attorney general “never contacted our office about this request or opinion. The AG’s opinion is incorrect, as the very title of the bill at issue says it makes an appropriation.”

When it was filed, the bill’s original title said it was an act relating “to revenue.” It was later amended to say the bill was about “to fiscal matters, making an appropriation therefor, and declaring an emergency.”

“The Governor properly exercised his constitutional authority to veto parts of the bill, and previous legal opinions have upheld similar line-item vetoes,” Hatchett said. “In the future, and in basic fairness, we hope the AG’s office will reach out to the Governor’s Office before issuing any advisory opinions on the Governor’s authority.”

Beshear had attempted to veto sections of the bill that create a sales tax exemption for currency and bullion and what he called an “unfunded mandate” for tax amnesty.?

The opinion was requested by the General Assembly’s top Republicans — House Speaker David Osborne and Senate President Robert Stivers.?

Typically, when governors do not sign or veto a bill, they become law without their signatures. That’s the last action recorded on HB 8.?

Hazard, some other Kentucky towns may enact restaurant tax, judge rules

Jack Brammer — Thu, 16 May 2024 00:38:15 +0000

Hazard, the Perry County seat, on March 26, 2024. (Photo by Austin Anthony)

A Franklin Circuit judge has given a legal victory to Hazard and several other Kentucky cities interested in imposing a restaurant tax.

The tax, created by the legislature in 1980, is levied in about 50 of Kentucky’s 418 cities on retail sales of food and beverages in all restaurants in the city. The tax rate is not to exceed 3% and revenue from it is to be used to promote tourism.

Hazard sued the state, claiming it was being discriminated against by not qualifying to enact the tax. Several other cities joined in the suit.

Hazard Mayor Donald “Happy” Mobelini

Hazard Mayor Donald “Happy” Mobelini on Wednesday said he was “elated” with the judge’s order and hopes that the city commission will take up implementing a restaurant tax at Monday night’s meeting. He said amenities that appeal to tourists can improve the quality of life for residents as well.

“I don’t think there will be a ‘no’ vote,” he said. “We’re in such a disadvantaged position here. We want to take care of our kids. We want to do for our kids what other communities are doing with things like recreational areas” that the mayor said will also draw visitors.

Logan Fogle, spokesman for the state Department for Local Government, said the court ordered the department “to take all necessary and appropriate steps to implement the order, specifically by including Hazard on the list of eligible cities to impose the tax and by including all similarly situated cities, like Ashland, on the list.”

Gov. Andy Beshear was dismissed from the case earlier by agreed order and the attorney general’s office intervened to defend the state.

Kevin Grout, a spokesman for Attorney General Russell Coleman, said Wednesday the office is reviewing whether to appeal the order.

Unconstitutionally arbitrary

Meanwhile, a director of the Kentucky League of Cities warned that no city should immediately try to impose the tax based on the Franklin Circuit Court ruling because it was not final.

Franklin Circuit Judge Phillip Shepherd

In a 21-page decision issued Monday, Franklin Circuit Judge Phillip Shepherd took issue with parts of a state law — KRS 91A.400 — that says which cities may impose the tax.

After Jan. 1, 2015, that classification of cities was changed, making Louisville and Lexington 1st-class cities and others home rule class.

Cities_with_Restaurant_Tax-2021

The law said in addition to a 3% transient room tax placed on lodging, the legislative body in an authorized city could levy a tax on tourism.

“The statute arbitrarily fails to provide a means of migration for cities whose population after January 1, 2014, either enters or exits throng of 4th and 5th class cities.”

The judge added that the law “fails to provide a pathway to correct the misclassification of cities like Hazard, whose population has always met the statutory criteria for belong tin in the 4th class (with the authority to enact the restaurant tax) rather than the 3rd class.”

But Shepherd declined to hold all of the law unconstitutional, especially in light of the financial reliance some cities have on the tax.

He noted that many tourism projects have been funded by cities authorized to levy the restaurant tax and that many bonds are financed using proceeds generated by the tax.

He said “the proper remedy” is to sever parts of the statute that violate the Kentucky Constitution’s prohibition on arbitrary legislation.

Those parts arbitrarily authorize some cities to impose a restaurant tax based on historical class and leave similarly situated cities without the ability to impose the tax.

The judge also ordered that the Governor’s Office of Local Government include on the list of eligible cities to levy the restaurant tax all similarly situated cities, like Ashland, with population ranges within the parameters of cities that had been classified 4th- or 5th-class.

Hazard and similarly situated cities with populations under 8,000 should be included on the list of cities eligible to levy the tax, the judge said.

“This ruling does not declare that those cities like Elizabethtown or Oak Grove, with current population totals over the 4th class population cap of 8,000 are no longer authorized to levy and rely on the tax,” said Shepherd.

He stressed that the Governor’s Office of Local Governments is directed to include Hazard on the list of cities eligible to impose the tax.

Shepherd said the state’s previous classification system for cities “is frozen in time based on population figures that have now changed or were initially misclassified.”

For clarity, he wrote, the now-repealed city-classification system directed that 3rd-class cities have populations between 8,000 and fewer than 20,000. Cities of the 4th class have populations of 3,000 or more, but fewer than 3,000.

Shepherd said Ashland maintains it has never had a population in this century or last that was as low 8,000, and it was misclassified.

Cities advised to proceed cautiously

Morgain Patterson, director of municipal law for the Kentucky League of Cities, said in an article on the KLC website that the cities of Bardstown, Beaver Dam, Berea, Elizabethtown, Kuttawa, Madisonville, Morehead, Pikeville and Prestonsburg intervened in the lawsuit as former 4th- and 5th-class cities eligible to assess the restaurant tax.

“These cities argued that the restaurant tax statute is constitutional and that invalidating it would cause catastrophe economic harm to those cities that impose the tax,” she said.

But, said Patterson, the judge’s order “purports to expand the number of cities that can assess there restaurant tax on a prospective basis, but the language of the ruling is unclear as to which cities that may include, except that it specifies the city of Hazard is eligible.”

She stressed that the order “is not final and should not serve as a basis for a city to adopt a new restaurant tax.”

Patterson said the order “clearly preserves the right of cities that currently assess a restaurant tax to continue to do so.”

She said the parties in the lawsuit have 10 days from the date of the order to file motions to alter, amend or vacate.

If a motion is filed, that extends the deadline for a party to appeal the decision, she said. Once the court rule on that motion, the parties have 30 days to file an appeal.

Hazard, along with Perry County Fiscal Court, filed the suit in ?January 2023. Shepherd dismissed Perry County as a plaintiff.

Judge’s order in City of Hazard v. Commonwealth of Kentucky

Restaurant Tax Order

Kentucky Senate approves two-year state budget 36-1

Jamie Lucke — Thu, 28 Mar 2024 02:37:19 +0000

Kentucky Senate at work. (Kentucky Lantern photo by Arden Barnes)

A nearly unanimous Senate on Wednesday night approved a state budget for the next two years before the document was publicly available on the legislature’s web site.

The compromise budget, which by Thursday morning was posted on the legislature’s site, emerged from a House-Senate free conference committee on Tuesday. It increases funding for the basic public school funding formula beyond what either the House or Senate had originally proposed.

The budget increases state employee pay by 3% each year but does not specifically dedicate money to raise pay for educators. Democratic Gov. Andy Beshear had sought an 11% increase for school employees. Republicans said the increase in the SEEK (Support Education Excellence in Kentucky) formula of 3% in the first year and 6% in the second year should allow most school districts to increase pay.

Senate President Robert Stivers and other Republicans said that funding teacher raises outside the SEEK formula would widen funding disparities among districts and put the legislature out of compliance with a 1989 state Supreme Court order requiring funding equalization.

Under questioning from Democratic Floor Leader Gerald Neal, Sen. Chris McDaniel, chairman of the Senate Appropriations and Revenue Committee, said the budget capped the amount of money the governor could draw from the Budget Reserve Trust Fund to respond to natural disasters. Neal noted the provision could force the governor to call the legislature into special session during an emergency.

McDaniel also said the budget does not provide funding to build two juvenile detention facilities for females, as requested by Beshear.

A news release from the Senate Republican Caucus said McDaniel and GOP leaders had “prioritized” putting the state in a position to continue reducing the income tax rate in future years. The legislature has reduced the income tax rate from 5% to 4% since 2022, which the GOP release said has “left $1.8 billion in the pockets of working Kentuckians.”

House Bill 6 — which lays out the? two-year $102 billion executive branch budget — includes general, restricted and federal funds. The Senate approved it 36-1 with only Republican Sen. Adrienne? Southworth voting no.?

The House now must approve the compromise budget before it goes to the governor who has line-item veto power.

Still to emerge from conference committee is House Bill 1, which funds numerous projects from the state’s record high Budget Reserve Trust Fund.

This article has been updated to correct an inaccurate description of the the juvenile justice law enacted by the legislature last year.

Child tax credit expanded, business tax breaks get new life in bill passed by U.S. House

Jennifer Shutt — Thu, 01 Feb 2024 02:16:11 +0000

The U.S. House on Wednesday, Jan. 31, 2024 voted to approve a tax package that would expand the current child tax credit for three years. (Photo of 1040 form by Getty Images)

WASHINGTON — The U.S. House voted overwhelmingly Wednesday to approve a $78 billion tax package that would expand the child tax credit and reinstate some tax incentives for businesses.

The 357-70 vote sends the bill, dubbed the Tax Relief for American Families and Workers Act of 2024, to the U.S. Senate, where lawmakers are expected to vote on it at some point, though passage isn’t guaranteed.

House debate on the 84-page measure was broadly bipartisan, with both Democrats and Republicans backing the agreement between Missouri Republican Rep. Jason Smith, chairman of the House’s tax-writing committee, and his Senate counterpart, Finance Chairman Ron Wyden, an Oregon Democrat.

Members of both political parties also spoke against the bill, with several far-right lawmakers arguing the expansion of the child tax credit would broaden the “welfare state” and progressive Democrats saying the bill didn’t go far enough to provide relief to low-income and working families.

“Each of these policies will help American business, grow, create jobs and sharpen their competitive edge against China,” Smith said.

The child tax credit expansion, he said, continues provisions that Republicans put into the 2017 tax law they passed during the Trump administration, while updating some of the language.

“We maintain work requirements while enhancing the benefit to support families crushed by today’s inflation and remove the penalty for families with multiple children,” Smith said.

Massachusetts Rep. Richard Neal, the top Democrat on the tax- writing committee, said the expansion of the child tax credit would immediately help 16 million children throughout the country.

“This is not the bill I would have written, but this is sensible policy,” he said of the overall package.

Neal sharply criticized the far-right Republicans who spoke out against the measure during floor debate and called the CTC “welfare.”

“I can’t believe that we would stand here tonight and hear that addressing childhood poverty is welfare,” Neal said.

Immigrants and child tax credit

Freedom Caucus Chair Bob Good of Virginia, Matt Gaetz of Florida, Thomas Massie of Kentucky, Scott Perry of Pennsylvania and Chip Roy of Texas were among the Republicans who argued against passage during floor debate.

They all expressed frustration that child tax credit payments could go to undocumented immigrants, even though a provision from the 2017 GOP tax law requires the child to have a Social Security number. And several criticized the tax credits for businesses as well.

“Little kids don’t get the checks sent to them even though they have a Social Security number. But their parents, who are here illegally, do,” Perry said.

Georgia Republican Rep. Drew Ferguson vehemently rejected the criticism, saying he didn’t worry “one single bit about making sure that American business is more competitive on the global stage.”

“This is not about giving business a tax break, this is about investing in America and American jobs,” Ferguson said. “And the complete mischaracterization about the child tax credit is the most intellectually dishonest conversation that I have heard on this floor in a very long time.”

“This is about making sure that people that work and their families have the ability to get ahead,” Ferguson added.

Connecticut Democratic Rep. Rosa DeLauro, one of the more progressive members of the House and a longtime advocate for the CTC, also said she couldn’t support the bill, arguing it was a “mockery of who representative government works for.”

“I cannot vote for a deal that so lopsidedly benefits big corporations while failing to ensure a substantial tax cut to middle- and working-class families,” DeLauro said. “The deal is inequitable at a time when we’ve seen a rise in inequality.”

Should Congress clear the bill, President Joe Biden is likely to sign it.

White House press secretary Karine Jean-Pierre said in mid-January the legislation was a “welcome step forward.”

“And we believe Congress should pass it,” she said.

What’s in the child tax credit?

The bill would expand the current child tax credit, which is up to $1,600 per child, to a maximum of $1,800 in 2023, $1,900 in 2024 and $2,000 in 2025. The expansion would expire after that.

The three-year expansion of the child tax credit would not reach the level Congress approved during the COVID-19 pandemic, when it reached a maximum $3,000 or $3,600 for children under 6 years old.

The bill includes several tax incentives for businesses, including a provision that would immediately allow businesses to deduct research and development investments made within the United States.

The bill would “??strengthen America’s competitive position with China by removing the current double taxation that exists for businesses and workers with a footprint in both the United States and Taiwan,” according to a summary of the legislation.

The legislation would help make housing more affordable through an enhancement of the low-income housing tax credit and other provisions.

Parts of the legislation are intended to help communities recover from natural disasters, including tax relief for families harmed by hurricanes, wildfires, flooding or the train derailment in East Palestine, Ohio.

The legislation would be paid for by ending a tax break for businesses that kept their employees during the COVID-19 pandemic, known as the employee retention tax credit. The law would end the ability for businesses to file new claims on Jan. 31 instead of April 15, 2025.

The House Ways and Means Committee voted 40-3 in mid-January to send the legislation to the floor.

‘Kids that need diapers and shoes’

Senate Majority Leader Chuck Schumer, a New York Democrat, said Wednesday he supports the tax bill and will be working to figure out when and how it should move to the floor for a vote.

Wyden, chairman of the Senate’s tax-writing committee, said he’ll be talking with Schumer to determine if there will be amendment votes on the package. But he said he wants to see it get a vote “as quickly as possible.”

Wyden also rejected some criticism of the bill not having a more significant expansion of the child tax credit, noting that it lasts for three years and Congress will need to renegotiate on tax policy after that.

“We got kids that need diapers and shoes and paying for essential (and) small businesses that are trying to compete with China,” Wyden said. “I gotta say, ‘Get on with it,’ ‘Get it done.’”

West Virginia Republican Sen. Shelley Moore Capito said she hopes the Finance Committee holds a markup before the bill moves to the Senate floor.

“I think they need to move it through Finance and have an amendment process without having everything all pre-decided,” Capito said. “That’s what bothers people when they’re trying to make policy, they don’t have any opportunities to weigh in. So I’m for the committee process. Bring it over and let it go through committee.”

North Carolina Republican Sen. Thom Tillis said he has several concerns with the bill, including that it’s “not comprehensive enough.” He said he hopes leaders will hold amendment votes on the floor.

“I’ve been saying it’s a mistake. I also think the pay-for is fake,” Tillis said. “I mean, it’s a program that we didn’t pay for when we were doing the COVID bills that we’re now considering a pay-for. And most of that is actually clawing back fraud and abuse.”

“Here’s a concept — why don’t we just send that back to the Treasury and start filling in the $34 trillion hole we have,” Tillis said, referring to the national debt.

Indiana Republican Sen. Todd Young said he and Idaho Sen. Mike Crapo, the top Republican on the tax-writing committee, are hoping to make changes to the legislation once it arrives in their chamber.

“We’re still hoping to make improvements,” Young said, though he declined to detail what changes he wants to make to the tax package. “I’m not going to elaborate.”

Budget, charter schools and abortion: What to watch for as Kentucky legislature convenes

McKenna Horsley — Fri, 29 Dec 2023 10:50:38 +0000

Lawmakers from both chambers, gathered on the floor of the House for last year's State of the Commonwealth Address, applauded first responders in the gallery, Jan. 4, 2023. (Photo for Kentucky Lantern by Arden Barnes)

Lawmakers will gather in Frankfort Jan. 2? to begin work on a state budget in a year when they will face voters at the polls.

Andy Beshear (Photo by Arden Barnes)

Gov. Andy Beshear will deliver the State of the Commonwealth Address to the General Assembly at 7/6 p.m. Wednesday, Jan. 3. The speech will be broadcast on KET and KET.org/Live.

See 2024 legislative calendar and standing committee schedule here.

The 60-day session will see the Republican-led General Assembly consider constitutional amendments to put on the November ballot, as well as pass a two-year state spending plan. It will also be the first session of Democratic Gov. Andy Beshear’s second term in office.?

All 100 seats in the House of Representatives and half the Senate will be up for election this year, meaning some lawmakers will have one last chance to pass legislation. Senate Republican Floor Leader Damon Thayer and Senate Judiciary Chairman Whitney Westerfield are among lawmakers who have announced plans to not seek reelection in 2024.?

Here are a few things to watch for during the next legislative session.?

Budget?

Beshear, a Democrat who won reelection in November, released his budget Dec. 18 in a televised address ahead of the legislative session. It was an unusual move to seemingly prevent another unusual move that happened during the 2022 legislative session. Then, House Republicans filed their own budget bill ahead of the governor’s budget address.?

Beshear is proposing a $136.6 billion spending plan for the next two years. Priorities include investments in public education, including an 11% raise for teachers and other school employees; $500 million for water and wastewater infrastructure, and fully funding the state’s expanded Medicaid program.?

However, it’s unclear what, if any, of the Democrat’s proposals will make it through the General Assembly, which has veto-proof Republican supermajorities. House Republicans will file their own budget bill when lawmakers return to Frankfort.

Chris McDaniel

Republicans approved income tax cuts in 2022 and 2023 as part of their plan to gradually eliminate Kentucky’s income tax. However, despite the record surplus, it was announced in August that state tax revenues failed to meet a benchmark set by the legislature in order to consider further income tax cuts in the 2024 session.?

At the time, Sen. Chris McDaniel, chairman of the Senate budget committee, told the Lantern Kentuckians can expect “spending restraint” that would allow for the legislature to meet the fiscal trigger in the future and cut the income tax rate again. “We do not need to spend every dollar that rolls into Frankfort,” McDaniel said. “The restraint that we will need to show will pay off when we’re able to further reduce income taxes.”

Beshear’s proposed budget doesn’t use any of the record $3.7 billion balance in the Budget Reserve Trust Fund, also known as the “rainy day” fund. A coalition of about 40 groups is calling on the state to use recurring revenue in the rainy day fund to pay for neglected needs in education, infrastructure and more.?

Beshear told reporters: “If the General Assembly decides though, based on actuarial studies, that they want to invest some of that money, depending on what they suggest I can be supportive of that. It has plenty of money for any unforeseen circumstance that we would face.”?

Charter schools, etc.

In recent years, Republican-sponsored laws aimed at funding charter schools and creating tax credits to pay for private school tuition have been struck down in court based on Kentucky’s Constitution, so it’s expected the General Assembly will pursue a “school choice” constitutional amendment during the next session

Recently, ??Franklin Circuit Court Judge Phillip Shepherd struck down a 2022 law creating a funding mechanism for charter schools in Kentucky. He wrote that charter schools are “private entities” that do not meet the Kentucky Constitution’s definition of? “public schools” or “common schools.” In December 2022, the Kentucky Supreme Court unanimously struck down a Kentucky law creating a generous tax credit to help families pay for tuition at private schools.

Jason Nemes (LRC Pubic Information)

After a Louisville Forum luncheon in December, House Republican Whip Jason Nemes told a Kentucky Lantern reporter that the legislature will “likely put that on the ballot next year for constitutional amendment,” but was unsure if there would be any specific statutory changes. Thayer, the Senate Republican floor leader, also said in a recent interview that a constitutional amendment to allow “school choice” would be among his priorities for the next session.?

Abortion exceptions?

In the 2023 governor’s race, criticism of Kentucky’s near-total abortion ban was renewed after Beshear’s campaign released ads pushing back at Republican Attorney General Daniel Cameron’s support of the laws. Cameron responded by saying that he would sign exceptions if the General Assembly passed such laws and he were elected.?

In his first press conference after the election, Beshear called on the legislature to pass exceptions to the law in cases of rape and incest. Also, in 2022, Kentucky voters rejected an amendment that would have declared there is no right to an abortion in the state Constitution.?

On election night, Nemes, who filed a bill in 2023 creating exceptions that did not advance, told the Lantern the matter deserves consideration.

“I think our people believe in the exemptions,” Nemes said. “And at some point, we’re representatives of the people, and we have to do what their demands are.”??

Anti-crime bill

A group of Louisville Republicans is backing an omnibus bill they call the Safer Kentucky Act. The draft bill has undergone several changes since they first announced their plans in September and now includes a three strikes law for violent felonies, regulating bail fund organizations, provisions to prevent “street camping,” and strengthening privileges for business employees and owners to “use a reasonable amount of force necessary” to protect themselves or prevent a person detained for theft from escaping.

Louisville Republican Rep. Jared Bauman stands at a podium backed by fellow lawmakers after presenting the Safer Kentucky Act to an interim committee. (Kentucky Lantern photo by McKenna Horsley)

The bill’s primary sponsor, Rep. Jared Bauman, said during an Interim Joint Judiciary Committee ?meeting in December that constituents across Kentucky are frustrated that “??the criminal element has become an all too normal part of our world today.”?

Some provisions in the original proposal have been removed, such as establishing a Kentucky State Police post in Jefferson County and creating a statewide wiretapping law for police officers. The wiretapping proposal may become separate legislation.?

A full draft of the bill is available on the meeting materials section of the committee’s page on the Legislative Research Commission’s website.?

Removing firearms from those at risk of doing harm

Savannah Maddox (LRC Public Information)

Senate Judiciary Committee Chairman Whitney Westerfield, who has been a member of the Senate for over a decade, is working on legislation that would establish crisis aversion and rights retention orders, also known as CARR. In an Interim Joint Judiciary Committee meeting, Westerfield noted the legislation is still being drafted and welcomed input from his colleagues and stakeholders.?

The proposal seeks to temporarily remove firearms from Kentuckians at risk of harming themselves or others. Several lawmakers voiced concerns about the bill, including Rep. Savannah Maddox, R-Dry Ridge.

Maddox voiced her “long standing opposition to this proposal” and concerns that it has the potential to violate constitutional rights such as due process and protection against government search and seizure. In response, Westerfield said he was not proposing a “search” or “ransacking of a home.”?

After the meeting, Maddox said on X, formerly Twitter, that House leadership told the National Rifle Association Westerfield’s proposal “will not advance this Session.”?

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Blue and red states slash taxes despite warnings of hard times ahead

Kevin Hardy — Mon, 30 Oct 2023 09:40:13 +0000

A man browses in the meat department at a market in Westwood, Mass. Massachusetts Democratic Gov. Maura Healey cited the rising cost of living earlier this month in celebrating passage of the state’s first tax cuts in two decades. Massachusetts was one of more than a dozen states to cut taxes this year. (Charles Krupa/The Associated Press)

With a $750 million budget surplus on hand, there was little doubt whether North Dakota lawmakers would cut taxes earlier this year — the question was how much.

“The surplus was strong, and we believe it’s going to be sustained into the future,” said state Rep. Craig Headland. “So, it just made sense to cut taxes.”

Headland was among the Republicans who negotiated terms of the legislature’s $515 million tax cut this year — 70% of which came from lowering personal income tax rates. The cuts leave North Dakota with the lowest tax rate among the states that collect income taxes.

In a special session this week, the legislature is considering more tax cuts that would exempt about 50,000 North Dakotans who earn $60,000 or less from income taxes. And Republicans, who control both chambers and the governor’s office in North Dakota, plan to continue their march toward eliminating the state income tax; Headland said he plans to introduce such a bill when the legislature reconvenes in 2025.

“Those revenues are there,” he said. “We certainly could do more tax relief.”

It’s not just red states that are slashing taxes.

In reliably liberal Massachusetts, Democratic Gov. Maura Healey just celebrated passage of the first tax cuts the state has seen in more than 20 years.?Estimated to cost about $1 billion over the next four years, the changes will reduce estate taxes and capital gains taxes while expanding?child and family tax credits and earned income tax credits.

Signing the legislation in Springfield earlier this month, Healey framed the cuts as a means of combating rising prices that have forced working parents to choose between the benefits of work and the costs of child care. The increasing cost of living in Massachusetts pushes young adults to leave the state, she said, and prevents renters from saving enough for a house down payment.

“Everyone feels the pinch,” Healey said, “and our future starts to shrink.”

Flush after years of thriving economies, states this year have continued a yearslong trend of tax cutting. Strong consumer spending, increasing property values and inflation have boosted state revenues along with an influx of billions from the federal government.

Many lawmakers view tax cuts as a logical response to boom times: returning excess taxpayer dollars to taxpayers. But some experts think states have cut too deep, using short-term revenue trends to justify permanent reductions in state revenue, often through cuts that benefit the wealthiest residents.?And they warn that some states already are starting to bring in less money.

So far this year, at least 15 states have cut income taxes, according to the Institute on Taxation and Economic Policy, a liberal tax policy nonprofit. Since 2021, half of all states have cut personal income tax rates, according to the Tax Foundation, a conservative-leaning tax policy nonprofit.

State tax cut measures vary wildly. Many have slashed income tax rates across the board. Other states have implemented more targeted measures or relied on so-called revenue triggers, which usher in tax cuts or rebates if state revenues reach certain benchmarks.

Oregon, for instance, will return a record $5.6 billion to taxpayers through the state’s “kicker,” which is triggered when state revenues exceed official projections by at least 2%. The current state windfall means Oregon will credit taxpayers an average of $980 on their 2023 personal income tax returns when they file next year, according to the state Office of Economic Analysis. ?

“We really are in the midst of a tax-cut wave right now,” said Wesley Tharpe, senior adviser for state tax policy at the Center on Budget and Policy Priorities, a research and policy institute that advocates for left-leaning tax policies.

Tharpe said the wave resembles those that followed economic booms in the 1990s and in the years following the Great Recession of 2008, though states now are cutting deeper than ever before. The current trend may leave states with less money on hand for education and health care, the top drivers of state spending, Tharpe said.

Additionally, many states continue to make regressive tax changes that benefit the wealthiest taxpayers, he said.

“The real risk for states is that they’re being a bit penny wise, pound foolish by thinking that they can afford a tax cut in the short term because of those surpluses, because of reasonably strong revenue growth of late,” he said. “But as collections decline, as the cost of the tax cuts grow, states are really going to be potentially pinched over the next five to 10 years.”

State budgets are strong (for now)

Over the past two years, state spending has ballooned.

A survey from the National Association of State Budget Officers shows state general fund spending increased 12.6% in fiscal year 2023, totaling $1.2 trillion. That was after a 16.8% increase in fiscal year 2022.

Nearly every state saw its tax revenues exceed official estimates over the past two years. And cumulatively, states more than doubled the amount saved in their rainy-day funds since 2019, reaching more than $160 billion in fiscal year 2022, according to the association.

“I’d say overall states remain in a strong fiscal condition,” said Brian Sigritz, director of state fiscal studies at the association.

“The big sugar high from all the money that went into the economy during COVID is running down.”

– William Glasgall, senior director of public finance, the Volker Alliance, a nonprofit supporting public sector workers.

But state revenues already have begun to fall in some states, including Iowa, Kentucky and Mississippi — which all cut taxes in recent years. The association’s spring survey found state revenues have begun to decrease slightly — a trend expected to continue through the fiscal year because of tax cuts, slower economic growth and weaker stock market performance.

“We received record growth there for two years in a row and so now it’s lower growth off that high baseline,” Sigritz said. “In some ways, we’re returning to a normal pattern.”

Huge surpluses over the past few years essentially forced states to decide between major spending projects and tax cuts.

“It’s politically untenable to hold this amount of cash and not do something with it,” said William Glasgall, senior director of public finance at the Volcker Alliance, a nonprofit that works to support public sector workers.

While states have stockpiled billions in reserves, the threat of an economic downturn still looms. After decades of underfunding public pensions, states, cities and other agencies owe more than $1 trillion, Glasgall said, and many states still have numerous deferred maintenance needs.

This month, the federal government said Americans must resume student loan payments after a three-year pandemic pause, leaving some 43 million consumers with less discretionary cash. The Pew Charitable Trusts, a nonprofit policy organization, warned the move could ultimately harm state revenues if borrowers trim their other spending — a particularly troublesome prospect for states that rely heavily on sales taxes.

And states have largely spent or allocated the nearly $200 billion Congress handed out in pandemic relief funds, Glasgall said. Those funds must be spent by the end of 2026. The Volcker Alliance has warned of the potential for a “fiscal cliff” for states that used the one-time funds for recurring costs.

“The big sugar high from all the money that went into the economy during COVID is running down,” Glasgall said.

Helping specific groups

In August, Kentucky’s budget director informed lawmakers that tax revenues weren’t strong enough to meet a fiscal requirement set by the GOP-controlled legislature that would have allowed legislators to continue cutting income taxes.

The left-leaning research group Kentucky Center for Economic Policy framed the news as a “glimpse of future trouble” for the state, particularly since low unemployment and high inflation continue to push up incomes.

Sen. Chris McDaniel, R-Ryland, chair of the Kentucky Senate’s budget committee, says the failed experiment in Kansas “will forever inform the way I think my generation of political leaders looks at the tax issue.”

I would rather take 10 years to get the reform right than to promise people things I have to walk back in two years.

– Sen. Chris McDaniel, chairman, Kentucky Senate Appropriations and Revenue Committee

But State Senate Appropriations and Revenue Chair Chris McDaniel said including the so-called revenue triggers shows the state is cutting taxes responsibly. He said it’s a stark difference from the failed tax experiment in Kansas, where then-Gov. Sam Brownback, a Republican, led an effort in 2012 to dramatically slash income taxes in the hopes of spurring an economic boom, but instead was forced to cut education, infrastructure and other spending as revenues tanked.

“That will forever inform the way I think my generation of political leaders looks at the tax issue,” McDaniel said. “I would rather take 10 years to get the reform right than to promise people things I have to walk back in two years.”

The Kentucky General Assembly cut the personal income tax rate from 5% to 4.5% in 2022. Missing this year’s trigger means that rate won’t be going down next session. But McDaniel said he would still like to see the state realize a longtime GOP goal of eliminating the state income tax.

Aside from personal and corporate income taxes, states have made changes aimed at helping specific groups, including older adults, homeowners and families.

This year, 18 states implemented or changed earned income tax credits or child tax credits, said Aidan Davis, the state policy director at the Institute on Taxation and Economic Policy.

“Those really are policies that are going to make a real difference in the economic security of millions of families,” she said. “So that was a really prominent trend this year.”

But many states took what Davis characterized as “steps backward” by making deep, permanent cuts that will not only hold down state revenue for years to come, but mostly benefit upper income residents.

That was the case with a recently approved change in Missouri that eliminated state income taxes on Social Security benefits, said Democratic state Rep. Deb Lavender.

The legislation, expected to cost Missouri more than $300 million per year, removed a previous income cap of $85,000 for single filers on pension benefits. That means high-earning individuals will benefit the most, Lavender said.

“We talked about our poor seniors,” she said. “This didn’t help a single one of those people that has to decide if they’re buying food or paying rent or getting medicine.”

The legislation was sponsored by Republican state Sen. Tony Luetkemeyer, who said retirees on fixed incomes shouldn’t see their Social Security benefits taxed. The new law, he said in January, “keeps seniors from having to hand over more money to government.”

That legislation came a year after nearly $800 million in tax cuts in 2022. The GOP-controlled legislature hoped to pass a $1 billion reduction in corporate and personal income taxes this year, but was unable to because of ongoing dysfunction in the state Senate.

Lavender said the state has plenty of needs those revenues could address.

Missouri is home to rising maternal mortality rates.?And starting teachers in Missouri earn on average the lowest salary of educators in any state.?

“I’m not an advocate for increasing taxes,” she said. “But could we just stop cutting?”

This story is republished from Stateline, a sister publication to the Kentucky Lantern and part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Stateline maintains editorial independence. Contact Editor Scott S. Greenberger for questions: [email protected]. Follow Stateline on Facebook and Twitter.

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As child poverty doubles, states launch or expand their own tax credit

Anna Claire Vollers — Tue, 26 Sep 2023 09:30:30 +0000

Brianne Walker plays with her 3-year-old daughter, Jeannette, at A Place To Grow day care in Brentwood, N.H., in July 2021. Walker and her family qualified for the expanded child tax credit that was part of a pandemic relief package. Elise Amendola/The Associated Press

The federal pandemic-era child tax credit expansion lifted millions of children out of poverty in the second half of 2021. But Congress allowed it to expire at the end of that year, and new U.S. census data shows the child poverty rate more than doubled in 2022, erasing the record gains that were made.

“It wasn’t surprising because we knew this was coming,” said Megan Curran, policy director at Columbia University’s Center on Poverty and Social Policy. “But still, when you see the magnitude of the change, and you know how many kids that represents, it’s still shocking.”

Now states are stepping in. Since the federal enhancement ended, several states have launched or expanded their own child tax credits.

Six states have created new child tax credits (New Jersey, New Mexico and Vermont in 2022, and Minnesota, Oregon and Utah this year), while five more have expanded their existing credits, according to the Institute on Taxation and Economic Policy, a nonpartisan tax policy nonprofit. Currently 14 states offer child tax credits, and several others saw bills introduced this year.

“Child poverty has often been thought of as this status quo that can’t change,” said Curran. “But one of the most powerful lessons to take out of the horrible pandemic is that our policy decisions really matter, and we can make a huge difference in a short amount of time.

“We know what works and we know how to do it. This is a solvable problem.”

A new approach

In 2021, the American Rescue Plan Act temporarily expanded the federal child tax credit, increasing the maximum credit to $3,000 per child ages 6-17 and $3,600 per child under age 6. It was a significant bump from the previous $2,000-per-child credit.

The temporary expansion gave the credit in monthly cash payouts to about 6 in 10 U.S. households with children, rather than as one lump sum after taxes. And it made the full credit available to all low- and middle-income families making less than $150,000 for married couples ($112,500 for single parents). The previous credit excluded income earners at the lowest end of the spectrum.

One of the most powerful lessons to take out of the horrible pandemic is that our policy decisions really matter, and we can make a huge difference in a short amount of time. We know what works and we know how to do it. This is a solvable problem.

– Megan Curran, policy director at Columbia University’s Center on Poverty and Social Policy

After the payments began, the nation’s child poverty rate dropped by half in 2021 to a historic low of 5%, primarily thanks to the expanded child tax credit, according to researchers at the Annie E. Casey Foundation, a charitable organization focused on child well-being. The expansion helped lift 3 million children out of poverty, according to the U.S. Census Bureau, which found that most parents said they used the credit payments on child care, rent, utilities, food and school expenses.

“You saw this whole host of data coming from all sorts of places, showing these payments were having a positive and immediate effect on families’ basic needs, and how they were able to care for their children,” Curran said. “You were seeing particularly significant gains for families with lower incomes.”

While the federal tax credit expansion did lift children out of poverty in the short term, some analysts argue it could have had negative long-term effects if made permanent.

“What we worry about, with good reason given the evidence, is that a lot of families will receive that extra money and it will cause them to work less or to not work at all,” said Scott Winship, senior fellow and director at the Center on Opportunity and Social Mobility at the American Enterprise Institute, a center-right public policy think tank. Winship said a permanent expanded child tax credit also might discourage marriage and result in more families headed by single parents.

Two pieces of?2021?research?from economists at the University of Chicago concluded that if the expanded child tax credit were made permanent, between 1.3 million and 1.5 million workers would exit the labor force. A 2021 analysis of census data from Columbia University researchers found that the temporary expanded benefits during the pandemic didn’t discourage parents from working, but Winship said the results might have been different if people thought the expanded credit was going to be permanent.

“It takes time for a lot of these behavioral changes to develop,” he said. “I don’t think 2021 is a very good test of what would happen in the long run.”

Winship added that he doesn’t think state-level child tax credits are a good idea, but that he’d rather see states experiment with different approaches to reducing child poverty than the federal government.

Who’s left out?

Now that eligibility for the federal credit has reverted to its pre-pandemic rules, low-income families are no longer receiving the full tax credit afforded to middle-income families.

For example, a married couple with two children must earn at least $35,900 per year to qualify for the maximum $2,000 child tax credit; a single parent with two children would have to earn $29,400 to qualify, according to the Center on Poverty and Social Policy. That means children whose parents get paid at or near the federal minimum wage of $7.25 an hour don’t qualify for the maximum credit.

About a quarter of children nationwide do not qualify for the maximum $2,000 credit because of their parents’ income. That includes a third of rural children; half of kids with a single parent; 40% of Black and Hispanic kids; and 90% of kids in households below the federal poverty level, which is about $30,000 per year for a family of four.

“We have programs for folks who struggle financially, but nothing replaces having your own funds to solve your own problems,” said Mercedes Elizalde, director of advocacy at Latino Network, a Latino-led advocacy organization based in Portland, Oregon.

Her organization advocated for Oregon’s new child tax credit, which gives an annual benefit of up to $1,000 per child up to age 5 for families who earn up to $30,000 per year. She said the Latino communities her organization supports tend to have a high proportion of families with young children.

“Having a tax credit that is specific to lower-income families and specifically helps families with multiple children is really beneficial when we know a two-kiddo household in our community is still pretty common,” Elizalde said.

She said she expects to see families use the funds for basic needs like food, clothes for school and utility bills.

“This is a way of buying shoes when their kiddos outgrow them or being able to cover a copay for a doctor’s visit,” she said. “It’s those little bits of money that are hard to plan for because you’re not always sure when you’re going to need them.”

Helping low-income families

Several states creating or expanding child tax credits have specifically targeted low-income families that fall through the gap in federal eligibility requirements.

“It’s a proven intervention,” said Minnesota Democratic state Rep. Aisha Gomez, who chairs the House Taxes Committee. Her committee put forward the child tax credit bill that became law earlier this year. “Poor people aren’t poor because they don’t work hard. Giving a little bit of extra money to folks who are experiencing poverty and aren’t being taken care of in our economy works, so we were happy to pick up where the feds unfortunately left off.”

Minnesota now offers a tax credit of $1,750 per child under 18 for single parents with incomes below $29,500 per year and married parents making below $35,000. The credit was passed as part of an omnibus tax bill that received no Republican support, but Gomez said she’d like to think if the tax credit had been a stand-alone bill that it would have received some GOP votes.

“Child poverty is one of those issues where I think there’s pretty widespread agreement that we have a role as the government to intervene when our system is failing families so acutely,” she said.

“What we’ve noticed is not only is there a huge explosion of interest [from states] in creating child tax credits in the last two years,” said the Center on Poverty and Social Policy’s Curran, “but there’s been interest in trying to craft them in a way that fixes some of the gaps the federal credit has historically had.”

Curran said her organization has been contacted by lawmakers in several states who said they were interested in child tax credits because they saw the significant poverty reduction that came from the federal expansion: “That really caught peoples’ attention.”

In nearly every state, a combination of the existing federal tax credit and a state credit up to $2,000 would slash child poverty rates by at least a quarter, according to an analysis from the Institute on Taxation and Economic Policy.

Elizalde said Latino Network will focus its efforts now on making sure people know about the new tax credit so they can take full advantage.

“This is going to be very impactful,” Elizalde said. “In a couple of years, we hope we can go back to the legislature and say, ‘Let’s increase that income cap and help more families.’”

This article is republished from Stateline, part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Stateline maintains editorial independence. Contact editor-in-chief Scott S. Greenberger at [email protected].

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Kentucky fails to meet fiscal trigger to allow for another income tax cut

Liam Niemeyer — Thu, 31 Aug 2023 20:49:33 +0000

The Budget Reserve Trust Fund is projected at $3.5 billion by the end of fiscal 2026 — about 21.9% of General Fund revenues. (Getty Images)

Kentucky Republicans’ goal?of gradually eliminating the state income tax has met an obstacle of their own making.

State tax revenues failed to meet a fiscal requirement set by the GOP-controlled legislature in order to consider further income tax cuts during next year’s legislative session, according to a letter?from the state budget director.?

The General Assembly in 2022 enacted a landmark tax law that established two benchmarks that must be met before state lawmakers can cut the income tax rate by a half percentage point.

Some Republicans and the Kentucky Chamber of Commerce want to completely phase out Kentucky’s individual income tax in the future, while Democrats in the legislature and some advocacy groups warn such cuts could lead to major budget holes.

Republican gubernatorial candidate Daniel Cameron on the campaign trail Thursday reiterated his support for eliminating the income tax, while Senate budget chair Chris McDaniel said Republican lawmakers would practice “spending restraint” in an effort to achieve future income tax reductions. Democratic Gov. Andy Beshear, running for reelection, warned that ending the income tax would require a huge increase in the sales tax and cuts to education and health care.?

HB 8 in 2022 cut the state income tax rate from 5% to 4.5% and also set up the complicated process involving two fiscal requirements that would trigger legislative consideration of an additional cut of a half a percentage point.?

Those two fiscal triggers are:

The state’s reserve fund — known as the “rainy day” fund — must be at least 10% of total general fund revenues for the prior fiscal year.?
Tax revenue for the fiscal year that just ended must have exceeded state spending by at least the amount that it would cost to reduce the income tax rate by one full percentage point.

Those fiscal triggers were met for fiscal year 2021-2022, and Republican lawmakers earlier this year approved another cut of the income tax rate from 4.5% to 4%.?

In the most recent fiscal year, the state’s “rainy day” fund had easily surpassed 10% of total general fund revenues. But State Budget Director John Hicks in an Aug. 14 letter to state legislative leaders said state tax revenues failed to meet the other fiscal requirement by nearly $435 million.?

Chris McDaniel

McDaniel, R-Ryland Heights, chairman of the Senate Appropriations and Revenue Committee, told the Lantern on Thursday that he believes the trigger not being met is a “successful implementation of policy” that balances a desire to lower the income tax with recognizing the need to fund government services.?

McDaniel said although the fiscal trigger not being met means the legislature wouldn’t cut the income tax rate in next year’s regular session, Kentuckians can expect “spending restraint” that would allow for the legislature to meet the fiscal trigger in the future and cut the income tax rate again.

“We do not need to spend every dollar that rolls into Frankfort,” McDaniel said. “The restraint that we will need to show will pay off when we’re able to further reduce income taxes.”

He said he doesn’t expect the legislature to make spending cuts to government services next year when lawmakers craft the state’s two-year budget, though there may be “frozen” funding levels for some services.

“I don’t see us cutting any place in my estimation,” McDaniel said.?

Yet the progressive research group Kentucky Center for Economic Policy, which has strongly opposed the income tax cuts, said in a press release that trying to meet the fiscal trigger for an income tax cut in the future would require shrinking “an already austere budget even more.”?

Andy Beshear (Kentucky Lantern photo by Austin Anthony)

“Failing to meet the trigger at a time when it’s easiest to do so because of national economic conditions should send a clear message,” said Jason Bailey, the executive director for KCEP. “It’s time to put a halt to further cuts and focus on the education, health and infrastructure investments communities must have in order to thrive.”

The center’s release stated cutting the state’s income tax is incredibly expensive because it makes up a large portion of the state budget, and the failure to meet the tax revenue trigger comes during a time of low unemployment and inflation, which generally should increase tax revenues.?

Beshear in a Thursday news conference said the economy is still “booming” and that Kentuckians “don’t have any worry” about why the fiscal requirement wasn’t met.?

Beshear also criticized Cameron, saying that eliminating the state income tax would require a “massive” increase in the state’s sales taxes including on food and medicine — which he claimed is something Cameron would do — along with cuts to funding for education and health care.?

“You cannot go to zero income tax, like Daniel Cameron has pushed, without either a massive sales tax increase — which is what he would do — or the gutting of K-12 education, higher education and health care coverage for millions of Kentuckians,” Beshear said.

Daniel Cameron (Kentucky Lantern photo by Austin Anthony)

Cameron in a Thursday campaign stop in Greenup County said he plans to work with the legislature to get the income tax rate “to zero as quickly as possible.” While Cameron has repeatedly touted the elimination of the income tax, he has not explicitly said how he would achieve that.?

Sean Southard, communications director for Cameron’s campaign, in a statement said Beshear was “lying” about Cameron raising sales taxes to eliminate the income tax. Southard didn’t directly answer how Cameron plans to achieve the elimination of the income tax.

“Under a Cameron Administration, we will grow the economy and attract more workers to expand the tax base in Kentucky,” Southard said.

McDaniel said Beshear’s comments on the income tax rate “smacks of both desperation and political opportunism,” pointing out that Beshear had vetoed HB 8 in 2022 that set up the process to cut income taxes but signed into law this year the latest income tax cut when it was “politically advantageous.”?

“There’s been no consistency from this administration regarding these reductions,” McDaniel said.?

In his 2022 veto message of HB 8, Beshear said in part that such income tax cuts could harm Kentucky’s economy in the future and referenced how Republican lawmakers in Kansas decided to roll back income tax cuts after facing a $900 million budget hole in 2017.?

When Beshear signed the latest income tax cut earlier this year — bucking concerns from fellow Democrats in the legislature — he said he wished sales taxes would have been reduced instead, but he believed the income tax cut would provide financial relief to Kentuckians dealing with inflation.

McKenna Horsley contributed to this story.

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Kentucky’s ‘rainy day’ fund reaches new heights due to tax revenue surplus

Liam Niemeyer — Wed, 02 Aug 2023 23:21:50 +0000

State Budget Office Director John Hicks (left) and Kentucky Office of Financial Management Director Ryan Barrow (right) speak before lawmakers. (Kentucky Lantern photo by Liam Niemeyer)

FRANKFORT — Kentucky’s budget reserve trust fund, commonly known as the “rainy day” fund, now sits at more than $3.7 billion in large part due to record tax revenues brought in by the state during the last fiscal year.?

State Budget Director John Hicks told state lawmakers at an interim committee meeting Wednesday the budget reserve trust fund is at a level “unlike we’ve seen” since its inception in the 1990s.?

He said Kentucky’s rainy day fund ranked as the sixth richest among all states as a percentage of general fund expenditures in the past fiscal year, according to a recent report from the National Association of State Budget Officers.?

“Five of those six states are oil states, which typically have very high reserves because of the volatility of that revenue stream,” Hicks said. “So, you know, really a unique circumstance.”?

The state had received $1.55 billion more in tax revenues than allocated into its General Fund in the past fiscal year, and deposited $1.45 billion of that excess into the state budget reserve trust fund, the fund’s largest deposit ever.

The state’s “rainy day” fund has increased significantly in recent years. (Courtesy State Budget Office)

Senate Appropriations and Revenue Committee Chairman Chris McDaniel, R-Ryland Heights, said the rainy day fund balance is a “high watermark” compared to when he first arrived in the Kentucky General Assembly in 2013, when the balance was well under $500 million.

“There’s 138 (lawmakers), which means there’s 150 different ideas about how to use it,” McDaniel said. “I think that one of our top priorities needs to be how do we return that to Kentuckians while still responsibly running government.”

McDaniel said he’s still unsure whether fiscal prerequisites will be met to allow Kentucky lawmakers to cut the state’s income tax rate again under a landmark tax law enacted last year by the GOP-dominated legislature. Some Republicans and the Kentucky Chamber of Commerce?hope to phase out Kentucky’s individual income tax altogether.

That law, House Bill 8, cut the state income tax rate from 5% to 4.5% — a 10% decrease — and also set up a complicated process by which the General Assembly could consider each year an additional cut of a half a percentage point.?

Two conditions have to be met for such a cut: the state’s rainy day balance must be at least 10% of total general fund revenues for the prior fiscal year, and the most recent fiscal year revenues must have exceeded spending by at least the amount that it would cost to reduce the income tax rate by one full percentage point.

The state’s rainy day fund balance, with the additional boost from the General Fund surplus, now sits at 24.6% of revenues from the past fiscal year and easily passes one of the two prerequisites set under HB 8. It remains to be seen whether the other prerequisite will be met to allow for a further cut of the income tax.??

Democratic lawmakers and some economic analysts have warned against continued cuts to the state’s income tax, stating the current rosy financial picture could sour in the future and leave state government with few options to fill potential budget holes without revenue from income taxes.?

Kentucky reports another record surplus. Will it lead to a third income tax cut?

Liam Niemeyer — Mon, 10 Jul 2023 22:45:24 +0000

(Getty Images)

Kentucky brought in a record $15.1 billion in general fund tax revenue during the last fiscal year — the most ever — buoyed by a strong jobs market, increasing salaries and wages and continued industry profits, the state budget director’s office announced Monday.

Revenue in fiscal year 2023 exceeded budgeted expectations by about $1.4 billion, in line with what a state group of economists had predicted in December.

It was the third year in a row that revenue surpluses exceeded $1 billion despite the impacts of continued cuts to the state’s income tax rate, potentially setting the stage for a third income tax cut in as many years when the General Assembly convenes in January.

“General Fund revenues substantially exceeded the expectations used in putting together the budget for the third straight year,” State Budget Director John Hicks said in a statement. “The $15.1 billion in revenues also incorporated six months of a 10 percent individual income tax rate cut that went into effect in January 2023.”

The top-line numbers for fiscal year 2023, which ended June 30, were:

Individual income taxes brought in $5.8 billion; $504 million more than budgeted.
Sales and use taxes brought in $5.6 billion; $299 million more than budgeted.
Taxes on corporations brought in $1.2 billion; $311 million more than budgeted.
Property taxes brought in $744 million; $100 million more than budgeted.
Coal severance taxes brought in $96 million; $20 million more than budgeted.
Cigarette taxes brought in $299 million; $19 million less than budgeted.

The finalized budget surplus numbers won’t be known until expenditures for the fiscal year, which ended June 30, are completed at the end of July.?

Chris McDaniel (Photo by LRC Public Information)

Kentucky Senate Appropriations and Revenue Committee Chair Chris McDaniel, R-Ryland Heights, touted the revenue report as proof that “conservative fiscal policy will yield results.”?

“I’m very proud of what we’ve done, and what we will continue to do to try to make sure that we balance — and I think we’ve proven that we have — lower taxes with responsible administration of government,” McDaniel said.?

McDaniel said the report for the just-ended fiscal year “looks pretty good” to again reduce the income tax rate during the next legislative session. But he said that calculation would have to wait for revenue numbers to be certified later this year.?

A landmark tax law, House Bill 8, enacted in 2022, cut the state income tax from 5% to 4.5% — a reduction of 10% — and also set up a complex process in which the General Assembly could consider in each future year an additional cut of a half a percentage point so long as two conditions are met: The state’s reserve fund — known as the “rainy day” fund — must be at least 10% of total general fund revenues for the prior fiscal year. Revenue for the year just ended must have exceeded spending by at least the amount that it would cost to reduce the income tax rate by one full percentage point.

Some Republicans and the Kentucky Chamber of Commerce want to phase out Kentucky’s individual income tax altogether.

The GOP-dominated legislature passed legislation earlier this year approving a half-percent cut to the state’s income tax from 4.5% to 4%, pointing to the prior year’s robust revenue. That cut will go into effect at the beginning of next year.

One economic analyst saw a warning sign in the rosy economic report. Jason Bailey, executive director of the progressive Kentucky Center for Economic Policy, said the impacts of the income tax cut are becoming evident. The “withholding” category of state income taxes, the amount deducted from an individual’s paycheck, dropped by 10.2% in June 2023 compared to June 2022.?

“That’s what happens when you reduce the income tax rate,” Bailey said. “I think there’s some people who claim that lowering the rate will somehow spur new economic activities such that receipts won’t drop, and we’re not seeing that here.”?

If the legislature continues to cut the income tax, the next economic recession could blow a hole in state funding for education and other services in the budget, Bailey said. Meanwhile, he added, lawmakers could invest this surplus in areas of need such as shoring up public education and providing housing in disaster-struck areas of the state.?

Democrats in the legislature and other advocacy groups had echoed Bailey’s concerns when Republicans were moving to approve another income tax cut earlier this year. Democratic Gov. Andy Beshear ultimately signed the GOP-backed legislation approving the cut, a move that he said would provide short-term relief to Kentuckians facing inflation.?

As for the drop in income tax withholding, McDaniel, the Senate budget chair, said it was anticipated and that he isn’t “terribly nervous about that.”?

“The one group that I don’t hear complaining about the fact that they see their income taxes go down is everyday Kentucky citizens,” McDaniel said.

Beshear releases tax returns

Lantern staff — Mon, 17 Apr 2023 16:57:25 +0000

The Beshears greet attendees in the House chamber during the State of the Commonwealth address in Frankfort on Jan. 4. (Kentucky Lantern photo by Arden Barnes)

Gov. Andy Beshear on Monday released his federal and state income tax returns, showing he and wife Britainy had $194,094 in gross income in 2023. Of that amount, $150,835 came from his salary as governor. The rest was mainly from dividends and interest.

A news release from the governor’s office said: “For the seventh consecutive year, the Governor released his tax returns and called on all other constitutional officers and legislative leaders to do the same. So far, Lt. Gov. Jacqueline Coleman is the only other statewide elected official to release their returns in the last seven years.”

The Beshears owed $23,051 in federal taxes and are due a $421 refund. They owe $8,245 in state income tax and must send Kentucky $842.

Beshear also released the financial disclosure statement that he filed in February, along with other candidates for governor. The disclosures are on file with Kentucky’s Executive Branch Ethics Commission.

IRS slated to hire thousands of workers, boost audits of wealthy taxpayers

Jennifer Shutt — Fri, 07 Apr 2023 09:50:26 +0000

The Budget Reserve Trust Fund is projected at $3.5 billion by the end of fiscal 2026 — about 21.9% of General Fund revenues. (Getty Images)

WASHINGTON — The Internal Revenue Service on Thursday detailed its plan to spend $80 billion in additional funding that Democrats approved last year as part of their climate change and health care package.

The plan says the agency will boost tax enforcement by increasing its “focus on segments of taxpayers with complex issues and complex returns where audit rates are minimal today, such as those related to large partnerships, large corporations, and high-income and high-wealth individuals.”

The 10-year outlook from the IRS shows nearly $46 billion would go to enforcement activities, with another $25 billion spent on operations support. The proposal would dedicate $5 billion to business systems modernization, $3.2 billion to taxpayer services and $500 million to clean energy.

The 150-page detailed proposal shows the IRS plans to hire more than 10,000 people during the current fiscal year with the vast majority of those hires, about 7,400, going to taxpayer services. The remaining 1,500 would go to enforcement, with about 700 going to operations support and 350 to business systems modernization.

During fiscal 2024, slated to begin on Oct. 1, the IRS plans to hire an additional 20,000 full-time employees. About 7,200 would work in enforcement; 6,500 would work in taxpayer services; 3,800 would be in operations support; 1,800 in energy security; and just under 200 in business systems modernization.

IRS Commissioner Danny Werfel said in a statement accompanying the report the “plan is a bold look at what the future can look like for taxpayers and the IRS.”

“Now that we have long-term funding, the IRS has an opportunity to transform its operations and provide the service people deserve,” Werfel added. “Through both service and technology enhancements, the experience of the future will look and feel much different from the IRS of today.”

GOP objections

Congress approved the legislation that provided the $80 billion in additional IRS funding in August amid a wave of objections from Republicans who said it would subject taxpayers to increased audits.

Democrats argued during debate on the package the additional funding would not go toward increasing audits on people making less than $400,000.

Janet Yellen (Photo by Sarah Rice/Getty Images)

The U.S. Treasury Department reinforced that pledge Thursday, writing the IRS plan “will not be used to raise audit rates for small businesses and households making less than $400,000 a year, relative to historical levels.”

Treasury Secretary Janet Yellen said the IRS plan “shows how the IRS will continue this transformation by providing world-class service, upgrading decades-old technology, and reducing the tax gap by ensuring high earners play by the same rules as working and middle-class families.”

Maryland Democratic Sen. Chris Van Hollen, chair of the panel in charge of the annual IRS funding bill, said the plan will allow the IRS “to dramatically improve customer service and efficiency for taxpayers who have struggled with its outdated systems.”

“For too long the IRS has lacked the tools it needs to go after rich tax cheats and those billion-dollar corporations that have used various schemes to hide their wealth and fail to pay what they already owe,” Van Hollen said. “It’s time that these corporations and individuals paid the taxes that are due rather than have the rest of the country pick up the tab.”

Beshear signs phase out of tax on aging bourbon, despite local officials’ pleas

Liam Niemeyer — Fri, 31 Mar 2023 03:51:25 +0000

There were 11.4 million bourbon barrels in the state as of 2021, and the bourbon industry paid just shy of $40 million in local and state taxes on those barrels in 2022. (Getty Images)

House Speaker David Osborne spoke on House Bill 5 an, act relating to property tax on distilled spirits, on March 15. (Photo by LRC Public Information)

FRANKFORT — Without fanfare, Gov. Andy Beshear on Friday signed a bill giving ?Kentucky’s bourbon industry a property tax break on barrels of aging whiskey.

Unlike bills legalizing sports gambling and medical marijuana, Beshear held no signing ceremony for House Bill 5.

Distillers had been asking for the tax’s repeal for some time, while local communities say the eventual loss of revenue will “devastate” their budgets.

The measure saw last-minute changes before passing the legislature on Thursday, the last day of the session.

HB 5, primarily sponsored by the chair of the House Appropriations and Revenue Committee Rep. Jason Petrie and House Speaker David Osborne, would slowly lift the bourbon barrel tax starting in 2026, increasing the tax cut by a few percent each year and accelerating the tax cuts over time.?

There were 11.4 million bourbon barrels in the state as of 2021, and the bourbon industry paid just shy of $40 million in local and state taxes on those barrels in 2022. The breakdown of tax revenue that year in counties where distilleries were located had local schools receiving about $26 million of that, with local and state governments receiving the rest. One of the revisions addressed reimbursing local school districts, fire departments and emergency services for funding they would lose under the tax break.?

HB 5 divided both party caucuses?throughout its movement. Lawmakers representing communities that are home to distilleries and benefit from the property tax in particular opposed the legislation.?

The Senate approved the revised HB 5 by a vote of 25-12 with 11 Republican senators joining one Democrat in opposition. The House concurred with the changes to HB 5 made in the Senate committee substitute by a 60-39 vote with more than 20 Republicans voting against it.?

A spokesperson for Gov. Andy Beshear’s office did not respond to a request for comment on whether he would sign or veto the legislation.

The bill was changed through a bill substitute in a special-called Senate Appropriations and Revenue Committee meeting just nine hours before midnight, the deadline for legislation to pass. The copy of the substitute wasn’t available online for the public or reporters to review while it was being debated on and voted on in the committee until after the committee had advanced the bill and adjourned.?

Bardstown Mayor J. Richard Heaton, one of a trio of local leaders who spoke against the bill in the special committee meeting, said the city will be paying off debt from updates to his city’s water infrastructure to accommodate distilleries for a long time.?

“People in our three counties have been asking us what is the goal of this legislative body? Is it to truly make the bourbon industry a tax-exempt industry in the state of Kentucky?” Heaton said.?

Chair of the Senate Appropriations and Revenue Committee Sen. Chris McDaniel, R-Ryland Heights, voted to advance the bill out of committee and ultimately voted for it on the Senate floor. He said the Kentucky Distillers Association had been a good partner with local communities but that the group had “a lot of bridges to rebuild” with local leaders.?

“I’ve never dealt with elected officials who feel such love — felt such love for an industry but at this point feel such a sense of hurt and almost betrayal, has been expressed to me,” McDaniel said.?

McDaniel said the new version of HB 5, which ultimately passed the legislature, added an additional ten years to rollout of the bourbon barrel tax easement going until 2043.?

The bill substitute also added a replacement tax, paid by the distilleries, to provide a base level of funding to reimburse local school districts, fire departments and emergency services impacted by the bill.?

It also allows distilleries to be reimbursed for income tax credits that they collected as a part of paying the bourbon barrel tax in the past, as long as the distilleries make at least a $20 million investment in a “lower or moderate income population.” Such populations are defined in the bill as a community where the “median family income or county median household income is less than 80% of the state median family income.”?

The Kentucky Center for Economic Policy, a progressive research group that also opposed the legislation alongside local governments, in a statement called the passage of the bill a “giveaway” to the bourbon industry that would “deeply harm” local governments.?

“The industry is pushing for this new tax giveaway because they are powerful and they can, not because they are needy and they must,” said Pam Thomas, a senior fellow with the group.?

Thomas’ statement also criticized what the group called “an unrelated tax break targeted to Google” that they say shouldn’t have been added “in the last hours” to a bill about distilled spirits.?

The revised bill language appears to exempt social media platforms from a tax that McDaniel said had been intended for telemarketers in another bill. McDaniel said the added exception was germane to the original bill about distilled spirits because both were revenue measures.

Jack Mazurak, a lobbyist for the Kentucky Distillers Association, in the Senate committee said KDA had made compromises to “keep our many community partners whole.”?

Mazurak, echoing comments from other proponents including House Speaker David Osborne, said the bourbon barrel tax was particularly harmful to startup distilleries.?

“This is a discriminatory tax that no other manufacturing industry pays,” Mazurak said. “We want to continue bringing distilleries, jobs, startups and new vibrancy to communities across the state.”

House passes tax break for bourbon industry as local governments warn of fiscal ‘devastation’

Liam Niemeyer — Tue, 14 Mar 2023 01:37:51 +0000

Rep. Jason Petrie (LRC Public Information)

The Kentucky House of Representatives approved a move Monday to gradually end a property tax on bourbon barrels — a vote that divided both political parties — the ramifications of which some local governments say will lead their communities to fiscal “devastation.”

House Bill 5, sponsored by Rep. Jason Petrie, R-Elkton, would slowly lift the bourbon barrel tax starting in 2026, increasing the tax cut by a few percent each year and accelerating the cuts through 2039.?

Loretto City Commissioner Josh Ballard in a Monday committee meeting said the expansion of the well-known bourbon distillery Maker’s Mark in the Marion County town has led to improvements to local parks, sidewalks and a revitalization of downtown.?

But he said the elimination of the bourbon barrel tax would do away with much of that, cutting his city’s budget by more than half.?

“The passage of House Bill 5 takes that all away,” Ballard said. “Leaving us with only the fear and concerns the citizens had with Maker’s locating in our city: the blanket of black mold, traffic and wear and tear of their trucks that will continue to use our streets and the memory of past promises made.

Whiskey fungus generated by the alcohol evaporating into the air from bourbon barrels has been a persistent environmental issue in communities that host distilleries.??

“I’m here today asking you to honor our handshake with the bourbon industry. Do not devastate my community,” Ballard said.

Pam Thomas, a senior fellow with the progressive research group Kentucky Center for Economic Policy, also testified before the House Appropriations and Revenue Committee. She said the “already lucrative” bourbon industry was receiving plenty of economic incentives and tax breaks.?

Thomas said removing the bourbon barrel tax was also considered in the past; a compromise was struck that maintained the bourbon barrel tax while also giving distilleries a tax credit on income taxes based on the bourbon barrel taxes paid.?

“They’re back before you now because the income tax liability has been reduced so significantly and the industry has grown so much that they no longer pay enough income taxes to use that credit,” Thomas said.?

She added the bourbon barrel tax has provided community services to not only residents but the distilleries themselves.

Because the bill already had two readings when it was heard by the House Appropriations and Revenue, it moved straight to the House floor for a vote. Advocates for the legislation, including House Speaker David Osborne, R-Prospect, said the existing bourbon barrel tax was a hindrance in particular to start-up distilleries.?

“I don’t believe that anybody anticipates that the bourbon industry is suddenly going to leave Kentucky,” Osborne said. “I do believe that there is a barrier to entry of new startups.”?

Osborne compared the bill’s impact to the state’s horse breeding industry, in which Kentucky had to match economic incentives offered by other nearby states to keep breeders in the state.?

“This will help cement ourselves as the bourbon capital of the world,” he said.?

Other Republicans and Democrats from distillery communities spoke up against the legislation, echoing the concerns of local government leaders from earlier in the day. Minority Floor Leader Derrick Graham, D-Frankfort, mentioned he’s had three generations of family work at Buffalo Trace Distillery.?

“For the very first time in my 21 years here, I will be voting against the distilleries,” Graham said. “Those of us who are here now, may not be here in the next two, four, six, eight years. We don’t know what the economy will be like in the next two, four, six, eight years.”?

House Bill 5 was passed on a 58-39 vote, with more than a dozen Republicans voting against the measure.?

A complementary bill to House Bill 5 saw near unanimous passage afterwards. House Bill 447 would ensure that school districts that benefited from the bourbon barrel tax receive a minimum “floor guarantee” of state tax dollars for education each year to make up for lost bourbon barrel tax revenue starting in 2025. House Bill 447 does not provide guaranteed future funding to local governments.

Osborne said local governments can still expect to receive the full benefit from the tax revenue for the next few years under the legislation, including tax revenue received as the percentage of the bourbon barrel tax is faded out.

Osborne said local governments “have lots of other revenue options available to them, including taxes that they’re now foregoing in many cases,” Osborne said.?

The bill now heads to the Senate.?

Beshear signs Republican legislature’s income tax cut into law

McKenna Horsley — Fri, 17 Feb 2023 18:04:37 +0000

The Beshears greet attendees in the House chamber during the State of the Commonwealth address in Frankfort on Jan. 4. (Kentucky Lantern photo by Arden Barnes)

FRANKFORT — Gov. Andy Beshear has signed the Republican legislature’s top priority, another cut in the state income tax, although the Democratic governor said lowering the sales tax would have helped more Kentuckians.

Facing reelection this year, ?Beshear said in a video Friday that he decided to sign the legislation, which most Democratic lawmakers had opposed, because of Kentuckians’ need for relief from inflation.

While inflation is temporary, Beshear said, “it’s still going to last for some time into the foreseeable future, and our people need relief. Now the best way to provide that relief would have been a reduction in the sales tax. A reduction in the sales tax for a certain period of time would have meant things that cost too much cost less, but the General Assembly refused to go that route.

“So what I’m faced with is a bill that would lower the income tax that has some long-term repercussions for potentially funding state services, but it would put at least a couple $100 in the pockets of most Kentuckians at a time when they need it,” the governor said.??

Beshear last year vetoed a Republican bill that shaved a half-percent from the income tax rate and set in motion this year’s further reduction, in a process that some Republicans hope will eliminate the income tax over time. The legislature easily overrode Beshear’s veto last year.?

This year’s House Bill 1, which Beshear signed, makes another half-percent cut to the state income tax from 4.5% to 4%, beginning in? 2024.?

Last year, the General Assembly passed a measure tying income tax cuts to specific financial triggers that would have to be met each fiscal year for the rate to be lowered, such as a balance in the state’s rainy day fund of at least 10% of the state’s General Fund receipts for the last fiscal year.

Democratic lawmakers and other opponents of ?last year’s law and this year’s HB 1 say the state’s current huge surplus is the temporary result of federal stimulus and relief spending during the pandemic, and that the loss of income tax revenue will force painful cuts in state services in the future.

In his comments, Beshear noted that while gas prices have gone down, inflation is affecting grocery store bills. He said that January’s income tax collections were at a record high, despite the the rate cut, and the state budget can sustain the recent income tax cuts for now.?

The bill’s lead sponsor, Rep. Brandon Reed, R-Hodgenville, said in a statement that last year’s passage to lower the income tax “approximately $625 million a year in the paychecks of working men and women and makes our state more competitive for jobs, workers, and economic investment.”

“HB 1 ensures that we take the next step by lowering the rate to 4% in 2024. Building a strong economy today is how we afford the progress we want for tomorrow,” Reed said. “To accomplish that, we must focus on policies that empower working Kentuckians instead of continuing with the status quo.”

He added his appreciation for Beshear’s signature, “as well as his attention to the fact that the legislature’s efforts to reform our state’s tax code and pass policies to make the state more competitive are paying off for Kentuckians. However, I also want to point out that this money belongs to the people of Kentucky. They earned it, not their state government. We are merely the trustees of these resources and we are obligated to investing each dollar responsibly.”

The Republican Party of Kentucky issued a statement calling Beshear’s decision ?a “blatant political move.”?

“This is just the latest example of Andy Beshear taking credit for Republican policies after having previously vetoed them,” RPK spokesman Sean Southard said.

“Last year, Andy Beshear vetoed the process which makes today’s Republican tax cut possible. He has spent countless hours attacking Republicans for this policy approach and left the members of his own party out to dry on it. What’s different between last year and this one? There’s an election this November. From his mishandling of our unemployment system, our Department of Juvenile Justice, his Team Kentucky Slush Fund, and the learning loss of our children, Andy knows he’s vulnerable to whoever wins the Republican primary for Governor. It is a blatant political move and Kentuckians will see through it.”

House Democratic caucus leaders Derrick Graham, Cherylynn Stevenson and Rachel Roberts issued this statement: “Last year, our caucus favored two other tax-cut proposals that would have benefited more Kentuckians more quickly, with one temporarily lowering the sales tax and the other issuing rebate checks.? We still think those are much better options, and neither would have put a permanent hole in state spending for schools, public safety and critical health and human services.

“We look forward to working with Gov. ?Beshear in his second term to restore better balance to our tax system.”

Coupled with last year’s cut in the income tax rate, the cut that Beshear just signed is projected to cost the General Fund $1.2 billion a year.

This article has been updated with new information and responses.

Income tax cut bill passed through the Kentucky Senate, headed to governor’s desk

Liam Niemeyer — Wed, 08 Feb 2023 23:13:35 +0000

Kentucky Capitol (Getty Images)

The GOP-controlled Kentucky Senate passed legislation Wednesday afternoon along party lines that would further cut the state’s income tax to 4%, sending the bill to the desk of Democratic Gov. Andy Beshear who remains mum on whether he’ll veto the tax cut.?

Senate Floor Leader Damon Thayer speaks in favor of House Bill 1, cutting Kentucky’s inomce tax. (LRC photo)

House Bill 1, highlighted by Republican lawmakers as a priority to pass well before this year’s legislative session began, faced strong pushback from various advocacy and research groups and Democrats who worried the loss of tax revenue could lead to a future budget shortfall and subsequent cuts to key government services.?

Republicans in the legislature have remained firm in their support of the bill, saying on multiple occasions that there are needed safeguards on the bill that would halt further income tax cuts in the case of an economic downturn in the state.?

Senate President Robert Stivers, while explaining his vote for the bill, said the overwhelming support for the legislation was a reflection of past elections that put Republicans in office and in control of the two legislative chambers.?

“That truck driver, that farmer, they don’t want us to take back money away from them,” Stivers said.?

The legislation reduces the state’s income tax from 4.5% to 4% percent at the start of 2024, a part of a series of pending income tax cuts of a half percent set in motion by landmark tax legislation passed last year.?

That 2022 law also included specific financial triggers that would have to be met each fiscal year for the income tax rate to be lowered, such as the balance of the state’s rainy day fund must be at least 10% of the state’s General Fund receipts for the last fiscal year.?

Financial experts reported last year that the state was flush with tax revenues, and the state’s rainy day fund has added on billions of dollars in funding in recent years, allowing for fiscal triggers to be met for the tax cut.?

The five Democrats who voted against the bill railed against the tax cut as inequitable, benefiting wealthy residents more while average Kentuckians see more of a tax burden through newly implemented sales taxes.?

Sen. Reggie Thomas, D-Lexington, opposed HB 1. (LRC photo)

Senate Democrats also echoed previous concerns from their colleagues in the House of Representatives that the recent boost in revenues should be used for investments across the state including to support survivors of natural disasters.?

“We want to give more money to the rich and let the working class people suffer,” said Sen. Reginald Thomas, D-Lexington. “It makes no sense at all.”

Majority Floor Leader Damon Thayer dared Democratic Gov. Andy Beshear to veto the legislation, mentioning that he was tired of arguments from Democrats describing the legislation as a “reverse Robin Hood” situation.?

“I dare him to veto this bill that lets the people of Kentucky know that their taxes are going to be cut for the third time since Republicans took over control of both of these chambers,” Thayer said.?

Beshear has not explicitly said whether or not he plans to veto the bill, previously criticizing new sales taxes that the GOP-controlled legislature passed last year.?

“I’m going to take a close look at anything that comes to our desk to balance out where our Kentucky families are at that time and both to look at short term and long term ramifications,” Beshear told the Lantern as he was leaving an event in the Rotunda.

Republicans hold such large majorities in both chambers that they could easily override Beshear’s veto, as they did with last year’s income tax cut.

Income tax cut bill passes easily out of Kentucky Senate committee

Liam Niemeyer — Wed, 08 Feb 2023 16:21:52 +0000

Members of the Senate Appropriations and Revenue committee hear testimony regarding House Bill 1 Wednesday morning. (Photo for Kentucky Lantern by Liam Niemeyer)

A top priority for Republicans in the Kentucky legislature, a bill that would further cut the state’s income tax, sped out of a Senate committee easily Wednesday morning.

The comments of support by GOP lawmakers for House Bill 1 and testimony critical of the bill mirrored past discussion surrounding the legislation when it sailed through the Kentucky House of Representatives last month.?

Sen. David Givens, R-Greensburg, in voting for the bill said “safety values” are built into the legislation — such as the balance of the state’s rainy day fun must be at least 10% of the state’s General Fund receipts for the last fiscal year —? as the income tax is continued to be cut to make sure the state government is meeting the needs of citizens.?

“We arrived at this in a very delicate manner,” Givens said. “This was not a hasty piece of document that was proposed.”

Givens told the Lantern he expects the bill to be heard on the Senate floor Wednesday afternoon, with the legislation poised for a vote. Democratic Gov. Andy Beshear told LINKnky in late January that he would “carefully” consider House Bill 1 and wouldn’t say whether he would veto the legislation.?

HB 1 would continue a series of tentative income tax cuts put in place by legislation passed by the GOP-dominated legislature last year. That 2022 bill slashed the state’s income tax from 5% to 4.5% and allows the legislature to cut the income tax by another half percent if the state meets fiscal triggers allowing for a further cu., ending the fiscal year on a strong financial foundation. HB 1 would continue to cut the income tax to 4%, effective at the start of 2024.?

Pam Thomas, a senior fellow with the progressive research group Kentucky Center for Economic Policy, testified again against the legislation after previously doing so before a House committee last month.?

Her comments treflected criticism made previously by a coalition of groups against the bill, saying that currently flush revenues and monies in the state’s rainy day fund are temporary due to in part pandemic-era federal stimulus dollars flowing to states, and that investments are needed in areas such as education and to help disaster survivors across the state.?

“They’ve got a very large budget reserve trust fund that they can draw on if they need it, to prop up revenues,” Thomas said. “But you know, the really scary thing, honestly, is that there just aren’t a lot of places for them to go to raise revenue outside of the income tax if they keep on the course.”?

Sen. Chris McDaniels, R-Ryland Heights, who chairs the Senate Appropriations and Revenue committee, said getting to a goal of a zero percent income tax rate may take a decade at minimum.?

He said he believed Thomas had valid points in her arguments, saying that each state has assets it can draw from for tax revenue – such as oil in Texas or tourism in Florida — and states need to account for that in creating its tax structure. But he remained confident that the bill has the necessary safeguards in place to cut the income tax.?

“The compelling narrative for the commonwealth is if we’re going to attract and retain the good, high quality organizations that bring good high quality jobs, we have got to be more competitive on the income tax policy,” McDaniel said.?

Income tax cut, a GOP priority, sails out of Kentucky House

Liam Niemeyer — Thu, 05 Jan 2023 16:13:14 +0000

Senate Majority Floor Leader Damon Thayer, R-Georgetown, (left) congratulates House Appropriations and Revenue Chair Jason Petrie, R-Elkton, after the passage of House Bill 1. (Photo by LRC Public Information)

FRANKFORT — A bill that would continue to cut the income tax in Kentucky, a top Republican priority, sailed out of the House on a party-line 79-19 vote Thursday afternoon.

The vote, which was followed by applause on the floor, took place on the third day of the session and about six hours after House Bill 1 easily passed out of committee.

Republicans praised the cut as a way to get money back in individuals’ pockets and strengthen the economy, while? Democrats warned that the change would disproportionately benefit the wealthiest Kentuckians while forcing cuts in education and other state services.

“I want to make sure that Kentuckians know who benefits from this lopsided revenue reduction bill? John Calipari. Jeff Brohm. Kelly Kraft,” said Rep. Josie Raymond, D-Louisville. “We should return to an affordable, graduated income tax, so we can adequately cover the costs of public education, Medicaid and public safety.”?

Republicans hailed the change. House Majority Floor Whip Rep. Jason Nemes, R-Louisville, declared? a “banner day” for Kentucky.?

“All taxpayers will benefit from this bill,” Nemes said. “Every single person who pays income tax will benefit.”?

Speaker Pro Tem Rep. David Meade, R-Stanford, also said lowering the income tax rate was the “best way” to “give people control over their money.”?

Democratic Gov. Andy Beshear said during a Thursday news conference he wanted to see the final form of HB1 on his desk before he made a judgment on the legislation.?

“I’ll have to look at how many dollars it’ll put in the pockets of how many Kentuckians at that time and how it could help their lives. So, I’m certainly keeping an open mind about it,” Beshear said.?

Beshear vetoed landmark tax legislation last year that began the process of tentative income tax cuts in the state, which was overridden by the GOP-dominated legislature. That piece of legislation also implemented new sales taxes starting this year on wide range of services.?

HB 1, co-sponsored by House Appropriations and Revenue Committee Chair Jason Petrie, R-Elkton, would lower the state income tax from 4.5% to 4% effective in 2024.?

The bill is a part of an ongoing, planned series of income tax cuts set in place by landmark tax legislation passed by the GOP-dominated legislature last year .?It allows the legislature to lower the income tax each year as long as fiscal triggers are met by the state, such as having adequate monies in the state’s General Fund, and the bill also lowered the state’s income tax from 5% to 4.5%.

Taking the income tax to 4% is projected to cost state coffers $1.2 billion a year by 2025.

“We don’t need the money in state government. It’s better that they have it and let it churn in local economies under their choices, not ours. It’s just a healthier system that way,” Petrie told the committee.

Last year’s landmark tax legislation also implemented a slew of sales taxes of 6% on services ranging from recreational camps to parking services.?

The bill faced pushback from the small minority of Democrats on the committee, concerned over how the state government would make up for the loss of income tax revenue and perceptions that the income tax cut would benefit richer Kentuckians while the implementation of last year’s sales taxes would hurt lower-income Kentuckians.?

“This is a shift in the tax burden, is what this is. We’re moving to more of a consumptive base tax, and that’s really good for high earners,” said Rep. Al Gentry, D-Louisville. “It actually raises the burden on the lowest of earners.”

Rep. George Brown, D-Lexington, also raised concerns about the fiscal impact of HB1, noting that the fiscal note for the bill, produced by the Legislative Research Commission, stated the future fiscal impact on the budget was listed as “indeterminable” by the Legislative Research Commission. The state is expected to lose $315.8 million in tax revenue from the half-percent drop in income tax in 2023-2024, according to the LRC.?

Petrie pushed back on the criticism, saying the narrative that the legislature will eventually have to raise taxes in the future to make up for present-day tax cuts was “bad for the public.” He said the economic fundamentals of the state are much better than in the past, allowing for the income tax cuts to take place.?

“Everybody’s still saying, ‘we’re going to have to raise taxes. Everything’s going to hell in a handbasket,’” Petrie said. “We continue doing what we’re doing, and we’re still not raising taxes.”?

Pam Thomas, a senior fellow with the progressive research group Kentucky Center for Economic Policy, spoke before the committee against the income tax cut. The think tank is a part of a coalition of groups that have continued to advocate against the legislation, arguing the boost in current tax revenues is a temporary “mirage,”?the result of massive federal spending during the pandemic and inflation, and that investments are needed in areas including public education and to help Kentuckians impacted by natural disasters on both ends of the state.?

“If you ask your constituents…I believe they’ll tell you they want good, strong public schools, access to affordable childcare, safe drinking water and roads that don’t have potholes. They’ll tell you, they want their fellow Kentuckians who’ve fallen on hard times and need help to receive help,” Thomas said. “I think there are significant risks in our state’s continued ability to do these things. And I think they’ll be severely compromised moving forward by the cuts in our income tax.”