House Bill 196, sponsored by Representative Bill Farmer, proposes to overhaul Kentucky’s tax system by eliminating income taxes on individuals and corporations while greatly expanding the sales tax base. The bill is an example of a shift to a consumption-based tax system. Kentucky needs to reform its tax structure, and HB 196 considers ways to broaden an outdated and too-narrow sales tax base. But taken as a whole, HB 196 is a risky and troubling experiment. It turns the tax structure upside down by dramatically shifting responsibility for funding government away from high-income Kentuckians. And by eliminating the income taxes that currently make up 43 percent of General Fund revenue, the bill would create imbalance in our revenue system that could harm our ability to invest in the public structures essential to future prosperity.
