'Worrisome' drop in sales tax income underscores need for tax reform, budget chair says

06/25/2013 08:55 AM

While Kentucky has seen its income tax receipts recover, Kentucky’s income from sales tax is lagging behind last year’s pace — a major source of concern for lawmakers as they head into a budget session in January.

Still, Democratic Rep. Rick Rand, the chairman of the House Appropriations and Revenue Committee that handles the budget, said that shouldn’t dissuade legislators from taking up tax reform that would include lowering the income tax rate and relying more heavily on sales taxes. Sales taxes already account for about a third of state revenue.

“I don’t think that’s a model that’s doomed. As a matter of fact, I think we want to progress as a state. We do need to broaden our tax base,” Rand said (3:00 of the interview).

The key, Rand said, is closing sales tax exemptions that have turned the tax code into “Swiss cheese.”

Through the first 11 months, Kentucky has collected more than $2.76 billion from sales taxes — $26 million less than at this point last year. But Rand acknowledged that budget experts aren’t sure what caused the dip.

“We don’t really know,” Rand said. “Some of the theories are well, maybe people are just readjusting their spending habits.” Another possibility: more Kentuckians are making purchases online.

In the last week, other legislative leaders such as Republican Senate President Robert Stivers and Democratic Senate Leader R.J. Palmer have said they would like to see corporate and personal income tax rates reduced and the sales tax broadened to cover certain services.

While Stivers said he wants to see the tax change package be revenue neutral, Rand said he disagrees.

“I don’t know why we’d do tax reform if we don’t feel like we’re going to get more money for it,” Rand said (8:30) … “I really think we hamstring ourselves when we go into this thing and say, ‘You know this has to be revenue neutral.’ It needs to be smart. And it needs to be something that we do that we can sell to the general public.”

(CLARIFICATION: The questioning in the interview may have mischaracterized the effect of the recommendations by the blue ribbon task force on tax reform. As Jason Bailey — executive director of the Kentucky Center for Economic Policy and a member of the task force — pointed out, the group did recommend lowering corporate and personal income tax rates but also closing income tax loopholes and changing some tax exemptions so that the state would actually get a bigger increase in income taxes than from the sales taxes if all the recommendations were adopted.)


Subscribe to email updates.

Subscribe and get the latest political intelligence delivered to your inbox.