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Bevin Calls For Phasing Out Individual Income Tax

J. Tyler Franklin

In a video played for business leaders, Gov. Matt Bevin called for a variety of changes to the state tax code, including lowering corporate income tax and the eventual elimination of the individual income tax.

The governor said the changes would make the state more attractive to people and companies looking to relocate.

“I’m more confident in your ability to take the leftover dollar and turn it into a ‘dollar plus’ than if you send it to Frankfort and just give us the ability to dispense of it,” Bevin said in a 20-minute long video played before a Kentucky Chamber of Commerce gathering Thursday.

Kentucky’s income tax ranges from 2 percent to 6 percent, depending on how much an individual earns.

Bevin has repeatedly hinted he wants to do away with the individual income tax and shift burdens onto “production-based” taxes like sales or property taxes.

Earlier this year, Bevin promised to call a special legislative session for lawmakers to come up with changes to the state’s tax code, but the initiative has been delayed due to political reluctance.

Kentucky hasn’t generated enough revenue to meet budget demands in 8 of the last 14 years, including a $138.5 million shortfall at the end of the most recent fiscal year.

Officials blamed the most recent underperformance on lackluster growth from sales and income tax returns.

In the video, Bevin asserted that lowering tax rates for companies would generate economic activity and eventually benefit the state’s coffers

“If we allowed you to keep that money yourself, you’re going to do one of several things with it — you’re going to deploy it in the form of payroll perhaps or capital expenditures into property, whatever the case might be. All of those things being taxable,” Bevin said.

Jason Bailey, executive director for the progressive Kentucky Center for Economic Policy said Bevin’s proposal is an “inefficient way to try and grow an economy.”

“What most often happens is the company or the wealthy individual will just pocket that money or spend it on a luxury good or travel,” Bailey said. “What it does is undermine those core investments and building blocks of growth like education that require us to all chip in for taxes.”

Bevin also called for a repeal of the inventory tax and inheritance tax, which he claimed is driving “the very seed capital that we need to move to another state.”

Last month, state economists unofficially warned that Kentucky could face a $200 million budget shortfall at the end of the current fiscal year, which ends next June.

In anticipation of the gap, Bevin directed cabinet secretaries to cut their budgets by 17.4 percent while exempting public school funding, Medicaid and state universities.

Attorney General Andy Beshear questioned the legality of the proposed cuts, saying the governor is only allowed to make budget reductions if there is an official revenue shortfall.

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