Kentucky Senate passes income tax refund measure

FILE - Republican Kentucky State Senator Chris McDaniel listens to testimony during a State and Local Government Committee meeting at the state capitol in Frankfort, Ky., February 19, 2020. Senate Republicans unveiled a tax relief proposal Thursday, Feb. 24, 2022, that would provide income tax refunds to Kentucky taxpayers in the latest proposal to provide relief from rising consumer prices.  The legislation would provide personal income tax refunds of up to $500 per individual and up to $1,000 per household, Senator McDaniel said.  (AP Photo/Bryan Woolston, File)

FILE – Republican Kentucky State Senator Chris McDaniel listens to testimony during a State and Local Government Committee meeting at the state capitol in Frankfort, Ky., February 19, 2020. Senate Republicans unveiled a tax relief proposal Thursday, Feb. 24, 2022, that would provide income tax refunds to Kentucky taxpayers in the latest proposal to provide relief from rising consumer prices. The legislation would provide personal income tax refunds of up to $500 per individual and up to $1,000 per household, Senator McDaniel said. (AP Photo/Bryan Woolston, File)

PA

The Kentucky Senate on Monday passed a bill that would leverage the state’s huge revenue surpluses to provide more than $1 billion in income tax refunds to taxpayers.

The measure was approved by the Senate in a 28-7 vote just days after it was unveiled. It would provide personal income tax refunds of up to $500 per individual and up to $1,000 per household.

The proposal then goes to the House, where a separate measure introduced last Friday would phase out Kentucky’s personal income tax — with the long-term goal of eliminating the levy. The sweeping House bill would also extend the state sales tax to a host of services.

Budget and tax measures are expected to dominate the proceedings in the final weeks of this year’s legislative session. Republicans have qualified majorities in both legislative chambers.

GOP Sen. Chris McDaniel, who is sponsoring the income tax refund, said the measure would bring some relief to Kentuckians struggling with rising fuel, grocery and utility prices.

“This bill is not a statement about anything other than who gave that money to the state and who needs that money the most,” McDaniel said during Monday’s lengthy Senate debate.

One-time rebates are expected to cost the state up to $1.15 billion. If the proposal becomes law, the rebates should be distributed to Kentuckians by the end of this summer, McDaniel said.

Democratic Senator Reginald Thomas called it bad tax policy, saying large swaths of the state’s population — including retirees and the working poor — would not benefit from the refunds.

Instead, he presented a proposal to temporarily reduce the state sales tax rate as a way to largely mitigate rising consumer prices. Democratic Gov. Andy Beshear approved the bill, which proposes a one-year reduction in the sales tax rate from 6% to 5%. It would provide $873 million in tax relief for Kentuckians struggling with rising prices, the governor said.

Beshear also recently took executive action to provide relief to Kentucky taxpayers impacted by pandemic-related increases to their vehicle property tax bills. The order – resulting from an increase in the value of used cars – will amount to about $340 million in reduced vehicle property taxes, he said.

Sen. Morgan McGarvey, the leading Senate Democrat, urged his colleagues on Monday not to vote on reimbursement without knowing what impact the loss of revenue would have on the next state budget.

Noting the over $1 billion price tag of the proposed discount, McGarvey asked, “What investments aren’t we making to make that investment?”

Proponents of the bill said the state would still hold huge amounts of budget reserves and surplus revenue after paying refunds, along with another round of federal pandemic relief to allocate.

Supporters have pointed to the value of the discount for Kentuckians feeling the pinch of rising prices.

“For some of us, the amount of money we’re talking about in this bill may not make a big difference,” Republican Sen. Ralph Alvarado said. “But I would say for the average middle-class family in this state … it will make a huge difference. A thousand dollars is a lot of money for our Kentucky families.”

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The income tax refund bill is Senate Bill 194.

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