Kentucky State Senator Stivers introduces new consumption tax that could replace personal income tax

Kentucky State Senator Robert Stivers was the guest speaker at Tuesday’s joint-meeting with the Southern Kentucky and Knox County Chambers of Commerce.

It was a packed conference room inside The Corbin Center as Stivers took to the podium to give a “heads-up” about a new consumption tax that could possibly replace personal income tax.

During the latest session, Stivers explained lawmakers passed legislation that uses ‘tax triggers’ to reduce Kentucky’s individual income tax rate, with the possibility of eventually phasing out the tax over many years using future revenue growth.

“We knew, based on our economists and growth projections, we were going to have significant revenues,” said Senator Stivers. “About six or eight months ago, I said ‘we may actually cut your taxes’ and we did just that.” He said, “So to be competitive and draw people to the state…we have to have a competitive tax code.” He added, “Tennessee, North Carolina, Mississippi, Alabama, and Florida, are actually switching to consumption tax codes.”

Stivers went on to say the tax code was defined in two different ways: a production tax code (income tax) or a consumption tax code (consumption of purchases/sales).

“So we drop your personal rates, we drop your corporate rates, and then you get to spend what you want and that will determine how you are taxed,” added Stivers.

In order to be competitive, there will be a series of tax triggers. The personal income tax rate will be dropped by 0.5 percent. If lawmakers see growth, the rate will be lowered by half a percent as long as the thresholds are met. For example, the rate will go from 5.0 to 4.5 to 4.0 to 3.5 until it eventually gets to zero.

“You get to decide how you get taxed by depending on your spending habits, not the government choosing to tax you based on how much you work,” said Senator Stivers. “I think it’s a fair and equitable way to tax. We plan to go in that direction.”  

In order to step away from occupational taxes and move forward with the consumption tax, lawmakers will have to change the Constitution to allow the municipalities and local governments to have the ability to use the consumption style tax code.

Senator Stivers advised, “We’re going to have to do these types of creative, innovative things to be competitive globally because we are competing globally. The world economy and what you’re seeing at the gas pumps, at the grocery stores, and other retail stores are not based on just what happens in southeastern Kentucky,” He said, “It was magnified when the events in Ukraine happened which has driven energy costs and food costs even more.”

Local costs are going to be driven by events happening around the globe. This means it will be more difficult for businesses to compete globally so there will need to be a different wage scale and distribution system in order to stay afloat.

The process to make the change is expected to play out as follows:

• the introduction of the new consumption tax code in 2023

• passage by legislators to put it on the ballot

• the people of Kentucky to change the Constitution to reflect that change in 2025

• the tax code to be changed in 2025 if Kentucky and lawmakers agree

The next Southern Kentucky Chamber meeting is scheduled for Tuesday, June 14 at 11:45 a.m. at the Corbin Center.

Samantha Walden, Staff Writer at the Kentucky Daily

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