The amount of income tax Kentuckians pay is set to drop slightly early next year, but experts say the Fed’s decision to raise interest rates has led to set the stage of an impending recession, and they worry that further tax cuts could drain the state budget and affect important public services.
Jason Bailey, executive director of the Kentucky Center for Economic Policy, said the state is using tax money to help communities rebuild from natural disasters. Given the level of devastation caused by recent floods in eastern Kentucky, he said, the state should be able to help provide safe housing, access to water and other basic needs for thousands of people as winter approaches.
Bailey noted that “the damage to eastern Kentucky from the floods was extensive.” “There are about 1,600 homes destroyed, bridges and schools needing replacement. The federal government is providing some resources but it’s not nearly enough given the scale of the disaster there.”
Earlier this year, the Republican-controlled state legislature voted to overturn the governor’s veto Bill House 8legislation that sets the state’s current individual income tax rate down at 5% to 4.5% next year, with potential future cuts down the road, based on the amount of money in the Kentucky General Fund.
Bailey acknowledged that Kentucky has pumped its rainy-day fund with a $943 million surplus, but cautioned that permanent tax cuts that go disproportionately to the wealthy would eventually take money out of public schools, access to health care, and transportation, in the event of a recession.
“These tax cuts will go largely to the wealthy at a time when Kentuckians daily need state services to help fend off what could be a painful recession,” Bailey said.
He cited Childcare as an example of how state tax dollars are being used to help support the statewide childcare industry and help families already struggling with inflation and high gas prices.
“About half of Kentuckians live in a childcare desert,” Bailey noted. “We’ve seen childcare centers close across the state. People can’t afford it. And it’s not sustainable.”
Funds for the US Child Care Center bailout expire in 2024. According to recent study By the Pritchard Commission, 72% of childcare centers in the Commonwealth said they would increase tuition without the additional federal funding. About 22% said they would close their doors.
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