Year of Publication

2022

College

Martin School of Public Policy and Administration

Degree Name

Master of Public Financial Management

Committee Chair

Iuliia Shybalkina

Committee Member

Caroline Weber

Committee Member

Rhonda R. Trautman

Executive Summary

House Bill 8 is set up to lower the state's individual income tax from 5% down to 0%. The bill is set up when revenue and rainy-day funds reach a certain level. The state's individual income tax will decrease each year the requirements are met. In addition, the bill has several services that will be subject to the state sales tax to raise tax revenues to offset the revenue loss that decreasing the state income tax would impact the state. However, the Kentucky Legislature Research Committee estimates that the fiscal impact of a net loss of $1.15 billion of tax revenue when decreasing the state income tax rate from 5% to 4% starting January 2023 to June 30, 2024 (Jennifer Hays, & LRC staff, Core Statistics-Economic Census, 2022).

To achieve the requirements met in the future, additional bills will need to be passed to broaden the sales tax base. For example, from my research into assessing three other states without state income taxes, the state legislature would need to tax the following goods and services in addition to what is already in House Bill 8 to increase tax revenues.

  1. Legalize and Tax Recreational and Medical Marijuana, Sports Betting, and Casino/Slot Machines
  2. Residential Utility Tax at 6%
  3. Motor Fuels Tax at 6%
  4. Increase Cigarette Tax to $2 per 20-pack
  5. Increase Sales tax rate to 7.64%

This paper analyzed how the taxes would affect the state revenues and how they would impact the households of Kentucky. From my analysis, when applying the changes above to the cost-of-living expenses of the average high and low-income households in Kentucky, I found that only high-income households would see a lower total cost of living under these conditions.

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