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June 2012
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Proposed local option sales tax has drawback of being regressive



Kentucky House Bill 399, simply put, would amend the Kentucky Constitution to allow the General Assembly to confer cities and counties in the commonwealth with the right to levy local sales and use taxes. Any local option tax coupled with specific local uses will be popular. The sales and use tax in Kentucky currently stands at 6 percent. We are about average for the 50 states. Recent polls have shown that a majority of Kentuckians support local option sales and use taxes when the tax dollars are attributed to specific local projects like schools or public works.

Expanding the sales and use tax is not the way to increase state revenue or fund specific local projects. Income tax, while obligatory, and therefore unpopular, is capable of being graduated. The result is a tax that proportionately taxes individuals based on their means. Consider for a moment the number of families in our state spending 100 percent of their income every year. If we increase sales and use tax by 1 percent these Kentucky families will all receive 1 percent less goods or services from spending "disposable" income. In this way, sales and use taxes deprive middle- and lower-class families of the spending power of their dollar.

Increasing revenue through measures that shift the tax burden to the middle class should be avoided. Sales tax is a flat tax. The result is that the same tax rate is paid by a single mother buying clothing and school supplies as someone buying a luxury sedan. Our current state income tax is barely graduated as earnings between $8,000 per year and $75,000 per year are taxed at a rate of 5.8 percent and any earnings over $75,000 per year are capped at a tax rate of 6.0 percent. Payroll tax for the City of Paducah is a flat 2.0 percent whether you make $10,000 a year or $100,000 a year. Our state and local legislators should consider expanding our tax base in areas that do not so directly impact middle-class families.



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