FRANKFORT – We may not think of mid-summer as tax season, but it’s something to keep in mind as an array of major changes in the state tax code is just days away from officially becoming law. As you may recall, the General Assembly quickly approved – over strong objections by many of my colleagues and me – a major revenue-generating
bill in the final days of this year’s legislative session. Taking the same path as the public-pension bill before it, the tax legislation was unveiled in the morning and then passed by the House and Senate later in the evening, without a moment of public input. The bill wasn’t even available online before the final vote.
Governor Bevin vetoed that bill, but the House and Senate came back after the veto recess and overrode it, despite the continued protests from those of us against this policy and the process in which was enacted. At the very least, we said, our constituents should have the chance to have their voices heard. This was not how tax modernization –
which virtually everyone agrees is needed – should take place.
Now that these changes are on the books and will be on our bills starting next month, there is need to be aware of what this new law might mean to you and your family. The most noticeable difference will be the addition of the six-cent sales tax to nearly 20 different services. That will apply to the labor on vehicle repairs and the purchase of extended service warranties. It will be charged for the grooming and medical care of household pets (but
not farm animals). You will pay the sales tax if you visit fitness centers, bowling alleys and golf courses, and it will be tacked on to your dry-cleaning and landscaping bills as well.
Some of those are ongoing costs, of course, but if you have a need for any of these services now, I would schedule them before the end of the month. There are other major changes on the income tax-side of the ledger. That rate is flattened to 5 percent, but the savings for many may not add up to much. A news outlet in Louisville estimated it would return $6.30 a month in withholding for workers making $36,000 a year.
At the same time, this new law removes some itemized deductions that many Kentuckians had used to reduce their state income taxes. Property taxes and healthcare expenses will no longer be eligible, but charitable contributions and mortgage interest will remain. One of the more troubling aspects of the law is the impact it will have on retirees, with many seeing their state income tax exemption dropping by a fourth. Currently, the first $41,100 of a retiree’s income from such things as pensions and 401(k)s is not taxed by the state, but that will drop to $31,100 going forward. This could cost older Kentuckians living on a fixed income hundreds of dollars.
The final major change of this tax bill is that it will add 50 cents to each pack of cigarettes. Altogether, these tax changes will make it difficult to forecast how much revenue they will bring in, because no one really knows how much they will change consumer behavior.
What we do know is that the Kentucky Center for Economic Policy estimates 95 percent of us will pay more when you tally up every change, while the richest five percent will pay less. This is more of a tax shift than tax modernization, and there is worry that the gap between our tax and economic bases – which should be closely aligned – will grow as a result of this new law. That will make it tougher to fund state government down the road.
If you need more information, the state has a new website that should be able to answer your questions. It can be found at TaxAnswers.ky.gov. If you have concerns about these changes, meanwhile, I encourage you to make your views known. You can always email me at Will.Coursey@lrc.ky.gov<mailto:Will.Coursey@lrc.ky.gov>, and if you’d like to leave a message for me or for any or all legislators, the toll-free number is 800-372-7181. For those with a hearing impairment, the number is 800-896-0305.