Year of Publication
Martin School of Public Policy and Administration
Master of Public Financial Management
Dr. Urton L. Anderson
Currently, Kentucky levies an individual income tax on all income earned by Kentucky residents at a rate of 5%. A bill approved in 2022 by the Kentucky legislature, KY HB8 for 2022 will phase down the individual income tax rate from 5% to 0% and expand the sales tax to 39 additional classes of services. Incremental decreases in the individual income tax rate depend on meeting General Fund receipts thresholds established in the bill after an initial reduction of one percentage point. Kentucky will join the ranks of 9 other states that do not impose an individual income tax including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming with this change. The purpose of this paper is to provide a general overview of KY HB8 and to examine how other states have performed under similar tax strategies. The short and long-term economic impact on Kentucky was not examined which is a limitation of the paper. State level financial information was reviewed to determine revenue generating strategies in Kentucky and several states with a no individual income tax model. States for this analysis included New Hampshire, Tennessee, and Florida for comparison to Kentucky. Comparison states were selected based on these characteristics: 1. New Hampshire provides examples of potential business tax strategies, 2. Tennessee provides information from a state that is geographically parallel and proximal to Kentucky and 3. Florida exemplifies a state with a prolonged omission of individual income taxes. The literature review describes critical public services and fiscal factors linked to the revenue sources for these states. A more comprehensive examination of the strategies used by other states may be useful to Kentucky as the elements of KY HB8 for 2022 are implemented. Examining revenue generating strategies used by other states without an individual income tax can identify additional approaches for achieving threshold attainment with KY HB8 for 2022. Research Questions 1. What are the potential fiscal implications of KY HB for 2022? 2. How do revenue collections for Kentucky compare to collections in other states without an individual income tax? 3. Are there revenue generating strategies in other states that have the potential to contribute to revenue collections in Kentucky?
Welsh, Patrick, "Examining KY HB8 for 2022: What Can We Learn from Other States’ Experiences?" (2022). MPA/MPP/MPFM Capstone Projects. 352.