Ky. passes tax cuts for wealthy, tax hikes for other 95%

The Kentucky legislature passed a sweeping tax overhaul this week, and now lawmakers are asking Republican Gov. Matt Bevin to sign a bill that would slash taxes for some corporations and wealthy individuals while raising them on 95 percent of state residents, according to a new analysis.

The proposal arrives on Bevin’s desk at a charged moment in Kentucky politics: The bill flew through the legislature on short notice, and thousands of teachers went to the state Capitol this week to protest cuts to their pensions.

Bevin’s position on the tax overhaul, Kentucky’s biggest in more than a decade, remains unknown. He said the bill and the state budget, passed by the legislature and awaiting his signature, may be “fiscally irresponsible.” Bevin has until April 13 to sign or veto the bill or send it back to the legislature with modifications.

The plan would flatten Kentucky’s corporate and personal income tax rates, setting both at 5 percent. Currently, Kentucky’s corporate tax rate runs from 4 percent and 6 percent, while its income rate ranges from 2 percent to 6 percent. The new flat rate of 5 percent for everyone means that small firms and Kentuckians with below-average incomes will see tax hikes — and higher earners will see tax cuts.

The bill attempts to make up for those cuts by nearly doubling the cigarette tax and imposing sales taxes on 17 additional services, including landscaping, janitorial work, golf courses and pet grooming. The state’s nonpartisan legislative staff estimated the plan will, on net, raise money, although other experts are skeptical.

The Kentucky plan includes an expansion of the sales tax, which is expected to hit most state residents. Overall, the plan would give an average $7,000 tax cut to the richest 1 percent of Kentuckians, who average more than $1 million of annual income, according to a report released Wednesday by the nonpartisan Kentucky Center for Economic Policy. But 95 percent of the state’s taxpayers will see a tax increase, and those earning between $55,000 and $92,000 a year will face the largest tax increases — about $213 a year.

Meanwhile, someone earning $8 million a year — such as John Calipari, the head coach of the University of Kentucky’s men’s basketball team — would receive a tax cut of close to $80,000 a year, said Jason Bailey, the executive director of the center.