Governor says tax reform plan to raise $210 mil. immediately is a 'starting point' for debate

02/04/2014 04:21 PM

One-third of the way into the 60-day legislative session, Gov. Steve Beshear on Tuesday finally unveiled his tax reform proposal, which he billed as a “starting point” of a debate to generate more state revenue over the long haul.

The plan Beshear suggested Tuesday would create an additional $210 million in tax revenue by expanding the 6 percent sales tax to some services, increasing the tax rate on cigarettes to $1 per-pack, and reducing a retirement income tax exclusion on top-earning pensioners.

He’s also proposing a slight realignment of the personal income tax rates and a dip in the 6 percent corporate income tax to 5.9 percent.

But his plan with 22 provisions arrives with just 40 legislative working days left in the session and with many of the 100 representatives and about a dozen senators preparing for re-election.

On the personal income tax, Beshear is proposing lowering the rate on top income earners — who bring in more than $100,000 a year — to more closely match how surrounding states tax the wealthiest earners. The plan would condense the tiered rate structure for lowest earners. But to make sure none of the lowest earners — making $4,000 or less — don’t end up paying more in taxes, Beshear is proposing a “Hold Harmless tax credit” and an earned income tax credit at 7.5 percent of the federal EITC.

The hold harmless credit would apply to Kentuckians making up to $4,000 a year to ensure no one would be negatively impacted Beshear said.

Watch Beshear’s speech on his proposal here:

A net increase of $210 million in revenue could be a non-starter for many lawmakers. Some Republicans have said over the last year that they could support only a tax reform measure that starts as revenue neutral but that would help the state’s income grow better with the economy over the long haul.

To more closely align Kentucky’s tax structure with how people spend money, Beshear’s proposal would seek to tax certain services, specifically ones that can’t easily be taken across state lines. Those would include golf course fees and country club dues, as well as services like landscaping and janitorial services.

The bill, sponsored by Rep. Rick Rand, D-Bedford, will include a reduction in exclusions to pensions, IRA and other retirement earnings. The proposal would not tax Social Security benefits.

Currently, Kentucky taxes all retirement income from pensions and IRAs of over $41,110 per person. The Blue Ribbon Commission heard from a professor in Bowling Green in June of 2012 who said his family earns more than $100,000 in retirement income and he currently does not pay state income taxes.

The $41,110 exemption would stay in Beshear’s proposal. But those earning between $80,000 to $100,000 per year would have to pay more in state taxes than what they currently do.

The proposal also includes incentives for the signature industries by offering a tax credit to the bourbon industry to offset taxing on stored barrels of bourbon, and exempting tax on equine products.

Rand, who chairs the House Appropriations and Revenue Committee, said the first debate will take place in the House A&R committee on Tuesday, Feb. 11. (Rand also does not face an opponent in the 2014 elections.)

Beshear said he would not ask legislators to vote on the proposal until the House and Senate have reached a consensus on the bill — or changes both sides can agree upon.


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