New Kentucky Chamber Report Calls for Bold, Comprehensive Tax Reform as a Key to Kentucky’s Growth

FRANKFORT, Ky. —Now is the time for bold, comprehensive tax reform in Kentucky, a new report from the Kentucky Chamber of Commerce argues. To firmly set the Commonwealth on a path toward long-term sustainable growth, building a tax code that can outcompete other states for population, workers, businesses, and investment is vital.

Following up on a major report on Kentucky’s tax code released by the Tax Foundation in November 2021, the Chamber’s new report, “Why Tax Reform: Kentucky’s Opportunity for Growth,” makes the case for why the General Assembly should build on the reforms of 2018 and 2019 and prioritize this critical issue in 2022. The report focuses on the importance of reducing and phasing out Kentucky’s individual income tax as a key strategy for growing Kentucky’s population, boosting incomes, and transforming the Commonwealth into a magnet for opportunity.

“As Kentuckians, we have long stood by and watched as no-income-tax states like Tennessee and Florida have grown and attracted new opportunities for their residents, often at the expense of the Commonwealth,” said Kentucky Chamber President and CEO Ashli Watts. “The data is clear: to outcompete other states for growth in an economy as mobile and fluid as today’s, we need a tax code that is up to the challenge. That’s why the Chamber’s top priority for 2022 is reforming Kentucky’s tax code, and this means strategically reducing and phasing our individual income tax.”

The report examines a wide range of economic, demographic, and labor market data to illustrate the benefits of reducing and phasing out taxes on work and small businesses. For example:

• Population growth in no-income-tax states has significantly outpaced states like Kentucky. In fact, the populations of no-income-tax states grew at twice the national rate in the 2020 Census.
• Tennessee’s economy – a no-income-tax state – grew 60 percent faster than Kentucky’s over the past two decades.
• If Kentucky’s personal income had grown at the same rates as Texas – another no-income-tax state – since 2001, it would be $55 billion per year higher than it is today.

This new report also looks at current economic trends, arguing that an income tax is more important than ever to support working Kentuckians and small businesses.

“With inflation continuing to rise and hitting the pocketbooks of Kentuckians harder and harder, lower income taxes means more hard-earned dollars in working Kentuckians’ bank accounts. In addition, because many small businesses pay individual income taxes as passthroughs, lower income taxes can allow these employers to meet the demands of higher wages and more competitive benefit packages. Through tax reform, lawmakers can directly help taxpayers cope with rising prices on everyday goods and support small businesses in competing for workers.”

Click here to read the full report, which also examines recent steps other states have taken to implement reforms and highlights other key areas to improve Kentucky’s tax code, such as repealing the Limited Liability Entity Tax, improving tax treatment of business investments, and addressing harmful taxes on business inventories.

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