HB 475 filed in this 2020 session of the General Assembly proposes a change to the Constitution of Kentucky to allow cities, counties and towns to impose and collect local taxes. This bill, often referred to as a local option sales tax, specifically, removes the following language from the Kentucky Constitution:
“and may, by general laws, delegate the power to counties, towns, cities and other municipal corporations, to impose and collect license fees on stock used for breeding purposes, on franchises, trades, occupations and professions. And the General Assembly may, by general laws only, authorize cities or towns of any class to provide for taxation for municipal purposes on personal property, tangible and intangible, based on income, licenses or franchises, in lieu of an ad valorem tax thereon: Provided, Cities of the first class shall not be authorized to omit the imposition of an ad valorem tax on such property of any steam railroad, street railway, ferry, bridge, gas, water, heating, telephone, telegraph, electric light or electric power company.”
The bill has currently passed a House committee and is set to be voted on by the entire House chamber today. However, the bill cannot be codified in law with just a simple legislative majority. The Kentucky Constitution requires that two-thirds of both chambers must vote in favor of the bill which results in the bill being added to the ballot in the next election and then the changes are only made if a simple majority of voters vote in favor of the proposal.
Should this bill pass the test of both the legislature and the public, local governments will likely increase consumption taxes, considered to be regressive taxes that disproportional impact lower- and middle-class families.
Higher tax advocates, such as Louisville’s Mayor Greg Fischer, have long touted the benefits of this tax to help their cities deal with budget shortfalls. Skyrocketing pension costs have forced local governments across our commonwealth to face cuts to vital government services like public safety, education and infrastructure.
Instead of increasing our tax burden, the legislature should focus on fixing the underlying issue – our growing pension crisis. Without meaningful changes to our current pension structure, the unfunded liabilities will continue to skyrocket along with taxes. We cannot tax our way out of this pension crisis and the legislature’s time would be better spent fixing our broken system instead of putting a bandaid on a gaping economic wound.