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Kentucky House Democrats' Top Priority: The Local Option Sales Tax

LOST 2015 HB1 Announced
Louisville Mayor Greg Fischer joins Democratic and Republican leadership in the Kentucky House of Representatives to announce that local option sales taxes will be their top priority this year. From left to right: Lexington Mayor Jim Gray, House Speaker Greg Stumbo, House Minority Floor Leader Jeff Hoover, Davies County Judge Executive Al Mattingly, Fischer, House Majority Whip Tommy Thompson.

FRANKFORT—Kentucky Democratic House leaders announced Friday that their highest priority in the upcoming legislative session will be passing a bill allowing local governments to enact local option sales taxes.

The legislation, designated House Bill 1, would allow local governments to put public projects on November ballots, and allow residents to vote on whether they should pay a one cent sales tax for a limited amount of time to fund the project.

A study conducted by the University of Louisville's Urban Studies Institute on found that Louisville has the highest income tax rate among its 14 peer cities, a finding similar to that in a 2011 national study which ranked Louisville as the fifth most tax-burdened city in the country. U of L researchers also found that the city's poorest residents—those making between $10,000 and $15,000 annually—would be hit the hardest.

But Louisville Mayor Greg Fischer said those numbers are wrong.

"First, your facts aren't accurate on where our position is on that. We'll be happy to give you a paper on that," said Fischer, who told WFPL last year that the U of L study—a $25,000 report sponsored by Louisville Metro Council Member Ken Fleming, R-7—was valuable in helping Fischer gain support for the measure.

"Look, any time there's a sales tax that argument is going to be made. That's why the state put their exemptions on food, medicine, utilities—it lessens the regressivity of it," said Fischer.

"What a local county or city has to decide is: 'Do they want to play to win?'"

Fischer's office has claimed that a LOST could bring Louisville $90 million annually with a one percent hike to the sales tax, though the U of L study found that it would generate $138 million.

House Speaker Greg Stumbo, a Prestonsburg Democrat, was against the local option sales tax last year, when similar legislation failed to muster enough support among rural representatives to be called for a vote in the House.

Less than a year ago, he said: “There’s a lot of options that they have, that they haven’t used, for local option taxes if they want to utilize them. So I don’t necessarily favor it.”

But Stumbo said Friday that he changed his mind after Gov. Steve Beshear convinced him last spring that locally collected taxes would reduce the need for state budget dollars to fund large projects.

"What they're saying is that if you have to pay a little bit more because you make less but remember—as Mayor Fischer pointed out correctly—the exemptions that currently exist in state would follow through in the event that these taxes were adopted by the local communities," said Stumbo.

House Majority Whip Tommy Thompson, an Owensboro Democrat, called the measure "A tide that lifts all boats."

The Kentucky Center for Economic Policy, however, found that even with tax exemptions on items like groceries, low-income residents will still be paying out a greater percent of their earnings than high-income residents on the tax.

"A sales tax that includes groceries is more regressive than one that does not," reads the report. "But, as the graph shows, even with the exemptions the poorest 20 percent of Kentuckians pay five times more of their incomes in sales taxes than do the richest one percent of Kentuckians."

Their findings echo those of the Institute on Taxation & Economic Policy:

Even with an uneven impact on poorer families, a 2013 Bluegrass Poll found that 72 percent of voters support the proposal.

Sponsors of the measure will need that same type of widespread support in the legislature. Since the bill is a constitutional amendment, a constitutional majority—or two thirds of both chambers—must vote in favor before it can become law.

Stumbo estimates that the bill will garner 35 to 40 co-sponsors in the House, among them Minority Floor Leader Jeff Hoover, a Jamestown Republican, who appeared beside Democratic leaders in support of the bill.

Hoover believes revenue-raising measures belong in the hands of local government, but he has regrets about the bill.

"The biggest regret about this legislation for me is the fact that it's not part of a larger, comprehensive tax reform," he said. "I've been an outspoken advocate for comprehensive tax reform for several years now and we have to do that in this state. I regret this is not part of it."

Hoover's Republican counterparts in the state Senate, however, may be less supportive of the local option sales tax. Senate President Robert Stivers, a Manchester Republican, said last year that his caucus was not focused on adding taxes.

Stivers told WFPL last year the 24 members of his caucus only favor tax reform which creates jobs and “does not subject the individual to anymore liability, but brings more people into the base.”

WFPL asked Stumbo: With evidence that a sales tax hits poor people harder, why not push for the type of local option tax that effects all income levels equally?

"I never really agreed with those numbers personally. I think we ought to have a national sales tax and do away with the federal income tax," said Stumbo. "I don't agree that 0.6 percent of disposable income for lower-income individuals, I don't think, is necessarily onerous."

When asked whether there would be a possibility for a local option tax on luxury items, Stumbo grinned.

"We'll probably have to cross one bridge at a time," he said. "But I don't think any of us obviously, or any of us here or any of us in either on of these chambers, want to place any more hardships on people earning minimum wage."

The 2015 session of Kentucky General Assembly begins Jan. 6.