By Rep. Steven Rudy
Kentucky faces a growth crisis, in large part due to a tax code that has long been in need of an overhaul.
In the last decade, our gross domestic product has grown at just three-tenths of a percent, a number lagging far behind states like Indiana and Tennessee. Kentucky’s average household income is 18 percent below the national average. Our labor force participation rate is 43rd in the United States, as states with more competitive tax codes far outpace Kentucky in terms of job creation.
The people of Kentucky deserve better. The status quo has limited economic opportunity and is unnecessarily complex. Many of our citizens have long been ineffectively served by a tax code based on the last century.
Decades of studies, working groups, and dust-covered recommendations have proven that simply talking about comprehensive tax reform is not enough. Our citizens deserve action, and that’s what the Legislature delivered in House Bill 366.
Our comprehensive tax reform package will simplify the tax code, grow the economy, and give working Kentuckians more take-home pay. It broadens the base and lowers the rate, sound economic policy that also served as the basis of the Trump tax plan and is recommended by experts on all sides.
Our economy has changed since the mid-1900s, and our tax code must modernize to keep up with it. This plan lowers the individual and corporate income tax rates while cleaning up outdated loopholes and deductions. It also improves the health of Kentuckians and generates revenue for education by placing a higher usage fee on cigarettes.
Tax reform also gives us the capacity to do what the House of Representatives has been committed to doing: strengthen public education. It allows us to increase funding for the children who enter the classroom every day by increasing per-pupil SEEK spending to $4,000. Our budget also increases funding for Family Resource and Youth Services Centers, who break down learning barriers for our most vulnerable students.
Perhaps even more importantly, we passed a budget that funds something that is not only a key priority of the House, but a foreign concept to past Democrat leadership: teacher and state employee pensions. We provide record funding to these systems, to the tune of over three billion dollars.
Don’t believe the fake news. We are not raising taxes on working people, a claim often made by those who fail to take into account numerous other factors, and who fail to see the growth potential in our economy. Our plan cuts the income tax rate paid by all Kentuckians who make more than $8,000 to 5 percent, from its current 5.8%. Further, no individual or family making 133% or less of the federal poverty level currently pays state income tax, and this plan does not change that.
We broaden the sales tax to cover certain services, ranging from luxury items like country club memberships and limousines to services like car repair and veterinary services. Lowering rates on families and job creators while moving to a consumption-based tax code has a proven track record. Tennessee brings in more than double what Kentucky does from sales taxes, and has a higher average household income, more jobs, and less poverty.
Obviously, no one enjoys paying taxes. But taxing consumption is far preferable and fairer than punishing work, and is also more aligned with our modern, more service-oriented economy. This begins the process of continuing to lower Kentucky’s income tax over the coming years, so we can reward hard work and investment while leaving more money in the pockets of job-creators and middle-class families.
This effort is not about any of us. It is about creating an economy and education system that are truly built to last – and able to provide upward mobility for all of our citizens. Increasing our investments in education and modernizing our tax code are the next steps in doing just that.
Rep. Steven Rudy, R-Paducah, is chairman of the House Appropriations and Revenue Committee.