Session Update: Week 7

Even before the General Assembly arrived at the Capitol in early January, everyone knew the biggest issues would be legislative redistricting, the state budget and tax reform.

The first two have followed predictable, if not always preferred, paths, but the parameters of tax reform have only started to take shape in the last few weeks.

On Friday morning, the House debated House Bill 8, which would have a profound and permanent impact on state revenues.  If enacted, it would send Kentucky into the same choppy waters that, as several other states have found, do not lead to smooth sailing.

The House approved the legislation on Friday, a mere week after it was introduced; and even as the bill was being debated, no one could accurately say what it would cost or offer more than anecdotal evidence that it would actually work. It had only been heard in committee the afternoon before, and multiple rules of procedure had to be waived in order to have the measure heard so quickly.

In short, the legislation would shift Kentucky’s revenues more toward sales taxes and away from the income tax, which provides 40 percent of our $14 billion annual budget.

House Bill 8 leans heavily on a billion-dollar surplus left unspent in the budget the House approved in January. That may be good for one year, but the costs in this bill are recurring and will dig a hole in state spending far faster than the bill’s revenue measures will ever fill it.

Those revenue measures would extend the six percent sales tax to about several dozen new services.  It would make us pay extra for such things as parking; having professional photos made; designing and hosting websites; renting space for a wedding or convention; storing a boat; and sending your child to camp.

The bill’s sponsors readily admit their goal is to emulate the nine states without an income tax.  They also acknowledge that it could be a long journey to get there.  Others and I argue that it’s also highly questionable whether this is the best route to take, because there are many reasons why a significant majority of states relies on a progressive taxing system.

It is important to point out that the nine states without an income tax evolved their policies over decades; their citizens pay more in other taxes – Tennessee taxes groceries, for example, while many communities pay almost 10 percent sales tax – and their economies rely on such industries as tourism that are not as prominent here.

At the same time, states without income taxes often spend less on critical programs and services like education.  A U.S. Census comparison of local, state and federal per-pupil funding showed that, in 2019, Kentucky spent $1,500 more annually on each student than what Tennessee, Texas and Florida spent.

Last fall, the highly reputable Pew Charitable Trusts said Kentucky had the second-most stable tax system between 2001 and 2020, trailing only South Dakota.  That predictability means we are much less likely to see wide swings in state revenues, something that helped immensely during the Great Recession and especially the first few months of the pandemic.

States that have moved in a similar direction have not always had an easy time.  Kansas’ ill-fated attempt in 2012 was essentially reversed five years later after massive budget cuts and the promise of economic growth didn’t materialize.

Other states trying to do something have taken a more cautious approach and still faced difficult times.  House Bill 8 does have trigger mechanisms so that future cuts beyond the first may be years away, but this ever-present financial cliff will make it that much more difficult for us to properly fund our schools and other critical programs in the future.

Moving away from an income tax creates true winners and losers. If you earn $1.4 million, you’re going to get about $11,000 back a year.  Most others who live paycheck-to-paycheck will see monthly savings measured in pennies or a couple of dollars. 

House Bill 8 is now in the hands of the state Senate, and if a compromise is reached, it will likely be in the final days of the legislative session, which must wrap up by mid-April.

On the same day this bill was approved, the House voted on its versions of the Judicial and Legislative branch budgets.  While both contain needed raises for state employees, the legislative budget includes a pay increase for House and Senate members serving in 2023 and beyond.  I supported an effort to remove, because I believe it is wrong for us to raise our salaries while severely cutting unemployment insurance and not giving teachers a raise.

Budgetary matters were not the only major issue last week.  The House also voted for a draconian anti-abortion bill that, if it becomes law, would all but stop this safe, legal procedure in Kentucky.

House Bill 3 would put unnecessary restrictions on abortion medicine sent through the mail; it will add requirements to obtain birth and death certificates for an abortion; it will make it tougher for minors to obtain an abortion while criminalizing doctors who don’t follow specific consent procedures in those cases; and it would add new but unnecessary reporting requirements designed to intimidate those they affect.

My colleagues and I spoke out strongly against this bill, which will put one of the safest medical procedures out of reach for the majority of women and your girls who need it. It will impact poor, black, brown, abused, and vulnerable women and girls in our Commonwealth the most. Every year, it seems, the legislature finds new and cruel ways to limit reproductive rights and invade privacy during one of the most trying times in someone’s life.  It shouldn’t have to be this way.

For now, the fate of these and many other bills is still unknown, but we will have final answers in most cases in just a few weeks.

I want to hear your thoughts on these issues, because that helps me immensely when it comes time to vote.  You can leave a toll-free message each weekday at 1-800-372-7181, while my email is Nima.Kulkarni@lrc.ky.gov.  If you would like to know more about these and other bills, they can be found at Legislature.Ky.Gov

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