The Kentucky General assembly had a busy first week back. The first order of business for the state House of Representatives was House Bill 1. It passed the House and will reduce the state income tax rate from 4.5 percent to 4 percent if it gets signed into law. The bill follows on the heels of last year’s rate cut from 5 percent.
Katherine Loughead, is a senior policy analyst with the Tax Foundation. She said there are concerns that another tax cut could increase inflation.
“That's the Federal Reserve's job ultimately, is to get a handle on what's going on at the federal level and the inflation that our entire country is seeing. But state legislators aren't in a position to address the root causes of inflation,” said Loughead.
Loughhead explained that nearly every other state has cut income taxes on a so-called permanent basis, while many have also made temporary rate reductions. The bill that passed the House is part of a roadmap Republican lawmakers in Kentucky are working on to get the state income tax down to zero.
Last year’s income tax cut added sales taxes to many services. Critics claimed this disproportionately affects middle-income and poor people. Loughead said it was good policy.
“Most of the consumer services that the sales tax was extended to you, I think that are more often consumed by higher and middle income earners rather than lower income earners, things like limousines and massage services, cosmetic surgery.”
Loughhead said the result was a less regressive sales tax. House Bill 1 could receive a hearing in the Senate after the General Assembly resumes its short session February 7th.
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