Governor’s exemplary leadership results in first major overhaul of Kentucky’s tax code in decades
Frankfort, KY: Governor Ernie Fletcher today signed House Bill 272, legislation to reform Kentucky’s outdated and unfair tax system. HB 272 includes virtually all of the components in the Governor’s original tax modernization proposal, JOBS for Kentucky.
Hundreds of people gathered on the front steps of the state capitol for the historic bill signing. Those in the crowd included legislators, local elected officials from various cities and counties, representatives from chambers of commerce, business, education, environmental and health organizations from across the state.
“This reform accomplishes several objectives,” said Governor Fletcher. “It reduces the tax burden on the poor, provides tuition tax credits for families of Kentucky students at in-state public and private postsecondary institutions, improves the tax climate for economic development, repeals a corporate license tax that was established in 1906 and offers significant environmental incentives.”
The legislation, passed by the Kentucky Senate and House on March 8th, will begin the first comprehensive overhaul in decades to a revenue system largely based on a 19th century economy.
“This is truly a historic occasion,” continued Governor Fletcher. “No significant progress was possible under our old, antiquated tax system – a system that punished the poor, stifled job growth and did little to encourage economic development and investment or to attract the entrepreneurs who create jobs.”
The top income tax rate will be reduced to 5.8 percent from 6 percent on income from $8,000 to $75,000. That was about a third of the reduction sought by Governor Fletcher. But the reform will result in 216,000 low-income tax filers, representing 496,000 total Kentuckians, being removed from the income tax rolls.
“Although I believe further individual income tax cuts are needed to have a more stimulating impact on the economic climate in Kentucky, this legislation is an excellent step forward,” Governor Fletcher added.
The top income tax rate on corporations, currently 8.25 percent, will be cut to 7 percent this year and then down to 6 percent in 2007. The Governor had proposed an immediate drop to 6 percent.
The legislation also closes some business tax loopholes, including the exemption for corporations that do business– but have no “physical presence” – in Kentucky. Legislators concurred with the governor that the exemption has been unfair to Kentucky companies. It also will treat all businesses the same, regardless of the form of organization.
Another benefit of the legislation includes a tuition tax credit of up to $500 for Kentuckians with children in Kentucky’s postsecondary educational institutions, public or private. More than 61,000 families are expected to qualify for this assistance.
Other tax credits are created for historic preservation; biodiesel, which will reduce air pollution; and brownfields development, which will help our cities by slowing the loss of green space to development and eliminating the potential health risks associated with blight.
The excise tax on cigarettes, which at three cents was the lowest in the nation and had never been increased, will be increased to 30 cents a pack, with part of the revenue dedicated to cancer research at the University of Louisville and the University of Kentucky.
“The time to raise our cigarette tax is now,” concluded Governor Fletcher. “It sends a healthy message.”
A development fund for equine breeders will help preserve Kentucky’s status as the horse capital of the world – a status that has been endangered by aggressive incentive programs in other states.
The constitutionally flawed corporate license tax and the “intangible property” tax on accounts receivable and bonds will be repealed. Experts say these two taxes are the biggest impediment to economic development in Kentucky.
Tax reform expert Dr. William Fox of the University of Tennessee says the tax modernization legislation is significant, particularly for economic development.
“Few things are talked about more and accomplished less than tax reform. I applaud the governor and the general assembly for bringing together a comprehensive tax plan. It’s good for business and it’s good for Kentucky,” said Dr. Fox.
Members of Governor Fletcher’s cabinet, along with state legislators and hundreds of supporters joined the governor for the signing of House Bill 272 today.