Reforming the tax code, where the experts see the discussion ahead of 2017

12/01/2016 09:13 AM

Details are scant on what exactly a GOP tax reform package would consist of or even when a proposal could come, but tax insiders are speculating on which way the discussions could play out based on previous comments from the governor and others.

Charles George, the government affairs director for the Kentucky Society of Certified Public Accountants, and Mark Loyd, a partner and chair of the Bingham, Greenbaum, Doll’s tax and employee benefits practice group, broke down the need for reforms and the different proposals which could be floated in the coming year.

“When is not the time for Kentucky to become more competitive,” Loyd rhetorically pondered when speaking about the need for reforms to the state’s antiquated taxing structure recently on Pure Politics.

Both Loyd and George called on the General Assembly to offer a “comprehensive” tax plan. A “clean slate” of reforms is needed for the state to prosper, George said adding the legislature should “act boldly” when creating a comprehensive tax package.

“If you were to come into this state looking at our economy, our demographics how would you develop a tax code that adequately meets the revenue in the services the state provides,” he said.

In order for the state to do tax reform, Loyd suggested lawmakers and working groups should start with the pieces of tax code that are not benefiting the state, what could work better and what could make Kentucky more competitive.

The “threshold question” on tax reform for George is whether or not Republicans in the General Assembly will shift to a consumption based taxing system.

“Income tax rates when you combine state and local, 8 – 9 percent in this state puts us at a huge competitive disadvantage and there’s some room not only looking at the sales tax, but also the property tax,” George said. “Sales tax in this state is 6 percent — we have no local sales taxes — when you look at our surrounding states they’re either on par or higher than Kentucky. So, there is room for growth in the sales tax.”

George said that by shifting to taxing on specific services would not have a big payoff revenue wise as an offset for other changes that have been proposed, one offset that likely won’t get a lot of support would be taxing medical services, which he said could generate $745 million for the commonwealth.

When taxing specific services, Loyd warned that policy wise lawmakers would have to target local services where the benefit and the service were delivered at the same place.

“The problem is who taxes what? Could it be double taxed? Will it force service providers to move out of Kentucky when the service economy is a very growing segment of the economy,” Loyd said. “So, we have to be careful when we’ve done that — if we were to go down that path — and nearly every state that has kind of flirted with a broad based sales tax on services has decided, no, that’s not the way we want to go, ultimately.”

Watch the full exchange with Loyd and George in the interview clip below.


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