Despite Kentucky’s high rankings in economic growth the past year, the current tax code has not brought in enough revenue to cover the state’s expenditures.
Last February, Gov. Steve Beshear announced the creation of his Blue Ribbon Tax Commission, charged with examining the state’s tax code and recommending ways to reform it. A report from consultants to the commission gave a more detailed look at the revenue problem. “Without fundamental reforms Kentucky could face a $1 billion shortfall by 2020, and could find itself at a competitive disadvantage to neighboring states for business growth, retention, and recruitment,” the consultants’ report states.
In December, the commission released a 435-page report with 54 approved recommendations in it. Beshear and other lawmakers have said they want to begin implementing the recommendations in the 2013 legislative session.
If the General Assembly were to pass all of the commission’s recommendations, it would increase revenue by about $659 million every year. A lot of that money would come from taxing higher pensions, luxury items and services. The commission also recommended raising the tax on cigarettes and giving local governments the option to charge a sales tax.
However, the recommendations have caused concern among several lawmakers, including freshman Sen. Whitney Westerfield, R-Hopkinsville. He said he is against taxing pension incomes.
“I’m not going to raise taxes on seniors,” he said. “I’m not saying I want to be the one that carries that tax burden, but I’d rather it be me than my mother.”
Westerfield said he’s been concerned about the intent of the commission since its creation. He said he worried the commission would simply be looking to raise taxes without finding ways to reduce spending.
When Lt. Gov. Jerry Abramson came to Hopkinsville in July to talk about the commission and its purpose, Westerfield said, it scared him to think that implementing a tax on one service might lead to other taxes down the road.
“It sounds really compelling. Isn’t it worth a little extra tax on something tiny like a pack of cigarettes if it helps keep road troopers on the job, keeps teachers in the classroom?” Westerfield said. “But when they run out of money again, what are they going to do? At no point in time did (Abramson) talk about where they can actually cut money that’s being wasted.”
Westerfield spent most of his election campaign advocating for the elimination of the prevailing wage, which is a set wage the state must pay workers on government construction projects. Rep. Myron Dossett, R-Pembroke, said he is also in favor of getting rid of it. Additionally, Dossett said the state can find revenue in other places without raising taxes.
“We have agencies … two or three agencies that are doing the same job,” Dossett said. “Combine them. And it needs to be done on a federal level also.”
Westerfield and Dossett both said they refuse to approve any recommendations that would raise taxes.
However, Rep. John Tilley, D-Hopkinsville, said he won’t take a hard-nosed stance without first looking at the bigger picture. He said that tax increases in some areas might be accompanied with tax decreases in others, and it is impossible to know how everything will come together before the General Assembly starts to look at it.
“I think to stake a position like that is impossible now,” Tilley said. “You have to look at it in context. I don’t think anyone can make an assertion, really a valid, responsible assertion, until they look at the entire picture.”
One of the biggest issues for the southern Pennyrile area is raising the sales tax and the option of implementing a local sales tax. Currently, the commonwealth imposes a 6 percent sales tax. Across the border, Tennessee has a sales tax of 9.5 percent, one of the highest in the country. Business leaders have said Kentucky’s lower sales tax makes it much more attractive to potential shoppers, which brings more business to the state.
Westerfield said he’s not entirely sure where he stands on the local sales tax option, but he worries about creating different standards across the state.
“I’m worried about creating a local option sales tax because you’re going to have lots of different standards, and it’ll cause cities or regions to compete with other cities and regions, when I think sometimes cooperation in regions is really where some of the growth and expansion can happen,” Westerfield said.
Dossett, however, said he would like to eliminate the state’s income tax altogether.
“I would love to see our state do away with the state income tax, the corporate tax and go to a straight sales tax,” he said. “It’s the only fair way … everyone has to have something in the game right there.”
Furthermore, Dossett said eliminating the income tax in favor of a sales tax would not discourage people from shopping in Kentucky but would encourage them to live here instead.
“That was one of the reasons we passed the … military tax exemption, to encourage those people, rather than to choose Tennessee because it has no state income tax, to choose Kentucky,” Dossett said. “Well, if that idea was good for the military, it would be good for everyone.”
Tax code reform is one of the two biggest issues that will come before the General Assembly in 2013. However, because this year’s regular session will last only 30 days, legislators have expressed doubts tax reform will be passed without a special session.
Dossett said the issue will most likely go beyond the regular session because tax reform in a regular session requires a super majority to pass, while in a special session it only requires a simple majority.
“If (pension and tax reform) don’t make it through this, I wouldn’t be surprised if the governor were to call the special session after the general session is over,” Dossett said.
REACH CARLA JIMENEZ at 270-887-3262 or email@example.com.
The Kentucky New Era is taking an in-depth look at some of the issue facing the General Assembly, which will convene Tuesday. Today’s story focuses the state’s tax code and recommendations to reform it.