Commission wants to lower Ky. taxes but spread them to new areas; Needs more time for final report

11/08/2012 07:13 PM

The Blue Ribbon Tax Commission on Thursday moved closer to hammering out recommendations that would change how Kentuckians pay taxes — potentially lowering their income rates but applying taxes to new areas, such as certain services.

The commission debated recommendations to send along to the governor on changing income tax rates, corporate taxes and sales taxes in their six-and-a-half hour meeting on Thursday. At the end of the meeting, the group officially requested more time to finish the recommendations after the Nov. 15 deadline Gov. Steve Beshear gave them.

Lt. Gov. Jerry Abramson, the commission’s chairman, struggled at times to move the group along and urged them to start making the tough decisions. He paced back and forth at a white board drawing up the options for the 17-member panel.

Here are some of the key recommendations that are being debated in the major categories of income, corporate and sales taxes:

Income Tax:

Earned Income Tax Credit

The group is considering an earned income tax credit, or EITC. It is designed to help small businesses and low income individuals by giving back a percentage of taxes paid. The group wants to give those who qualify 15 percent back as a tax credit. Rep. Bill Farmer, R- Lexington, made the suggestion at the October meeting and suggested the group consider an advanced payment option similar to the federal EITC.

Retirement Income:

Currently, Kentucky taxes all retirement income over $41,110 per person and does not tax social security income. The group heard from a professor in Bowling Green in June who said his family earns more than $100,000 in retirement income and he currently does not pay state income taxes.

The group is considering lowering the retirement income tax threshold to $15,000 — effectively taxing everything earned through pensions and other income. Federal Social Security income also would be taxed by the state under that suggestion the group is considering.

Itemized Deductions:

The group wants Kentucky to broaden the base of taxes by disallowing 75 percent of itemized deductions. In theory, one still could deduct items from state taxes but only 25 percent of them would be calculated in. By going to a broader base and collecting more taxes from retirement income and disallowing a high percentage of itemized deconstructions will allow the group would want lawmakers to lower the income tax rate …

Income tax Rate:

But the group is split on how to best adjust it. Members debated whether to adopt a lower flat tax rate or a progressive, or tiered, tax rate. The group’s members said they are interested in lowering income taxes, but not sure yet how the math will work at different rates and agreed to table the discussion until their next meeting.

Kentucky currently taxes income on six brackets at rates ranging from 2 to 6 percent. Everyone in the state earning more than $8,000 is taxed at a 5.8 percent flat rate and those making more than $75,000 rare taxed at a 6 percent rate.

Sales tax:

Rather than consider specific options such as – - taxes on limousines and country club dues – the group essentially punted to the governor and legislative leaders on how best to make specific changes. Instead, the commission derived a list of concepts that the governor and elders will look at when considering those options.

Rep. Jim Wayne, D-Louisville, argued during Thursday’s meeting that the commission needs to be cautious about sales tax because it can disproportionally affect the working poor — specifically the taxes on commonly-used services, such as car repairs. The group agreed Kentucky needs to expand the sales tax and that it should include services following these principles:

-10 or more states have similar tax – Household consumption base – Target luxury service items – Inelastic demand of products

Corporate Taxes:

The group ran through a laundry list of corporate tax changes and additions to the corporate tax structure. Some items were brought up and quickly dismissed, such as a public input request to review and close loopholes for the coal industry. That prompted little discussion because there were few loopholes in question. It was removed from the list under consideration. Other items, such as an angel investor tax credit program, was discussed at length.

The General Assembly considered the Angel Investor tax credit in 2012 but didn’t act on it. The credit seeks to encourage capital investment in Kentucky. While the group moved to include the idea in a list of recommendations to the governor, the commission is re-writing the policy to model it after other successful attempts at angel tax investing.

About Nick Storm

Nick Storm joined cn|2 in December 2011 as a reporter for Pure Politics. Throughout his career, Nick has covered several big political stories up close, including interviewing President Barack Obama on the campaign trail back in 2008. Nick says he loves being at the forefront of Kentucky politics and working with the brightest journalists in the commonwealth. Follow Nick on Twitter @Nick_Storm. Nick can be reached at 502-792-1107 or nicholas.storm@twcnews.com.

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Comments

  • Bruce Layne wrote on November 09, 2012 09:50 AM :

    This is a common ploy of government. It’s almost an innate property of government and I don’t think most legislators even realize it for what it is.

    They tell us they’ll lower our taxes but spread them to new areas. Sometimes it’s revenue neutral, but sometimes it’s presented as an overall tax cut to make the new taxes more palatable. The other ploy is telling us that the new tax scheme is more fair. The old appeal to fairness game. We want things to be fair.

    But a year later, the taxes start creeping back up again. We have new taxes piled on top of old taxes, and they all just keep increasing to feed the ravenous beast of big government.

    The only solution is to focus on reducing government spending, but politicians are loathe to do that. They’re reelected because they confiscated some private wealth, declared it to be public money, and then redistributed it to some voting constituents or to some financial contributors to their political campaigns.

    We desperately need fewer taxes, not more new taxes. We need simpler taxes, not a more complicated shell game of Hide The Taxes.

  • Jeanie Embry wrote on November 09, 2012 10:12 AM :

    We’ve already got a ‘flat tax’ structure..“Kentucky currently taxes income on six brackets at rates ranging from 2 to 6 percent. Everyone in the state earning more than $8,000 is taxed at a 5.8 percent flat rate and those making more than $75,000 rare taxed at a 6 percent rate.” We will never have adequate funding for education without adding some top tier rates. We lag behind in educated work force. The current ‘flat tax’ system is not providing revenues we need for education.

  • Jeanie Embry wrote on November 09, 2012 10:17 AM :

    Top Site Selection Factors: Highway Accessibility – The Need for Speed

    http://www.areadevelopment.com/logisticsInfrastructure/November2011/site-slection-factors-highway-access-55542277.shtml

    Number #1 business issue is Transportation. (Not corporate tax rate, not labor costs…TRANSPORTATION!)
    Contrary to popular belief KY is very competitive with 12 of its peer states when it comes to the ‘published’ economic development incentives. Our weakness is skilled workforce and we lag behind in offering economic incentives for women-owned and minority-owned businesses.
    We’re also lagging behind in state-level incentives for rural economic development.
    Additional economic incentives should be offered at the State level which could spur small business growth for women-owned businesses particularly in Paducah/ McCracken County since Paducah/ McCracken county’s population is majority female.

    Paducah has a strategic geography in that we can move product in 1-day from Paducah to 65% of the US population!!

    We have connections to 2-Class I railroads in Paducah and 1-Class I railroad in Louisville.
    We’ve got enough Walmarts, restaurants, and retail facilities that pay minimum wages and no benefits.
    We cannot grow our local economy void of industry that pay descent living wages and benefits!!

    We do have at least one industry here in Paducah under knowlege-based sector category (the Life Sciences, ie hospitals) but beneficiaries of high-wages are limited to few.
    Tennessee workforce wages overall pretty much inline with KY’s overall wages and TN as we all know is a ‘right-to-work’ state!!

    Here’s a review of KY’s Economic Development incentives prepared for KY LRC by Anderson Economic Group released in June 2012.

    http://www.lrc.ky.gov/Lrcpubs/AEG%20KY%20Incentive%20Report_jun112012.pdf

  • Jeanie Embry wrote on November 09, 2012 10:47 AM :

    Kentucky’s Income Tax: Protecting and Strengthening a Key to Growth

    http://www.kypolicy.org/content/kentucky%E2%80%99s-income-tax-protecting-and-strengthening-key-growth

    The state individual income tax is essential to economic growth and quality of life in Kentucky and should be protected – even strengthened – as part of any tax reform package. It is the largest and most effective tool the state has to generate resources for crucial investments in schools, health care and other key services. It not only provides a huge portion of current revenues but is also more effective than other taxes at generating, over time, the revenues needed to keep pace with Kentucky’s needs.

    The poorest 20 percent of Kentuckians pay an average of 5.6 percent of their income in sales and excise taxes, while the highest-earning 1 percent pay only 0.9 percent. It has been proven time and time again, increasing sales and excise taxes hurts the most vulnerable.

    KY’s income tax funds critical services, especially education and health care.
    Since KY has some of the sickest people in the country and since our primary weakness in economic development incentives is lack of investment in skilled workforce… we MUST reform our tax code in a way that moves KY forward, not backward!

  • Cat Balz wrote on November 10, 2012 10:17 AM :

    Just wait for Mr. Burns and Mayor McCheese to say.. Or, give us casinos and all is good,folks. We be good.

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