WKU economics professor details effects of Kentucky H.B. 1

If signed by the Governor, House Bill 1 could lower the state's individual income tax to 4% as of January 2024.
Published: Feb. 9, 2023 at 6:42 PM CST
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BOWLING GREEN, Ky. (WBKO) - Kentucky H.B. 1 was sealed and delivered to Governor Andy Beshear’s desk on Wednesday, Feb. 8, 2023, but it has yet to be signed into law.

It states that Kentuckians’ income tax will be lowered from 5% to 4.5% this year, and next year will decrease another half-percent to 4%.

As a result of eliminating the state income tax, the Kentucky sales tax could increase to make up for lost revenue.

This is something that Dr. Sebastian Leguizamon, associate professor of Economics at Western Kentucky University, said the state could benefit from.

“It is going to be very hard to know exactly what is going to happen, both in the short run and the long run,” said Leguizamon. “What we expect to happen is that we could benefit from a higher sales tax in terms of helping the state collect more revenues to provide the services that we are all demanding.”

In other words, with no state income tax, Kentuckians would be paying a higher sales tax on goods and services.

“We expect, and typically theory tells us that, a consumption tax like the sales tax is going to increase the revenue that we can have in the state. Therefore, it can provide better services, or, at the very least, get out of some of the budgeting problems that Kentucky has,” said Leguizamon.

Leguizamon also said a potential elimination of the sales tax could bring more people into the state to make up for lost revenue.

“We hear stories, for example, it does not really help to have Tennessee next to us. Being in Southcentral Kentucky, we hear stories all the time that people would like to be in Kentucky, but Tennessee has no income tax. So they would rather live in Tennessee,” said Leguizamon.

If Governor Beshear decides to veto the bill, Republican lawmakers are eligible to override the veto since they have a majority in the House and the Senate chambers.

For more information regarding Kentucky H.B. 1, click here.