House Speaker Greg Stumbo says tough road ahead for governor's tax plan

Governor says reform package could bring millions in new revenue

By Kevin Wheatley, Published:

House Speaker Greg Stumbo called the prospects of passing the governor’s tax reform package unveiled Tuesday — a proposal that could raise nearly $210 million in new revenue — “daunting.”

Stumbo, D-Prestonsburg, singled out the state earned income tax credit as one component of Gov. Steve Beshear’s 22-point plan he supports, but he questioned the need for tax breaks for bourbon companies considering their “record profits.”

Still, it’s too soon to say what tweaks will be offered as the plan moves through the General Assembly.

“It’s too hard to tell,” Stumbo said. “You can pick out certain pieces of it and I guarantee you right now you can find a few members against or for, but the way you have to consider it, I think, is look at the package in total and tell me how much of it you could support if the package were to pass at least basically intact.”

Senate President Robert Stivers, R-Manchester, said at first blush, Beshear’s plan seems like “a raw tax increase.” He previously said he wanted a reform package that increases job growth without raising an individual’s tax liability and has requested the proposal be scored to reflect such impact. 

“I think it would be very hard to convince the Speaker that their chamber’s going to pass that,” Stivers said. “… We’ll wait and see. We’re going to have the discussions and go from there.”

Beshear presented his “Kentucky Competes” tax proposal Tuesday, hoping to jumpstart talks on the politically sensitive issue with one-third of the 60-day legislative session completed.

Beshear’s plan relies heavily on broadening the sales and retirement tax pools as well as raising the cigarette tax from 60 cents to $1 per pack to generate a combined $580.7 million in new revenue once fully implemented.

At the same time, “Kentucky Competes” would lower the individual and corporate tax rates while offering an earned income tax credit worth 7.5 percent of its federal counterpart. It would also implement a variety of tax breaks for Kentucky-based businesses and signature industries.

In all, the plan would eventually bring in $209.8 million in new tax revenue, Beshear said. That would cover the structural imbalance in Kentucky’s biennial budget, he said, while the first two fiscal years in the coming biennium would see more revenue initially — $326 million in fiscal year 2015 and $291.6 million in 2016.

The proposal would extend the state’s 6 percent sales tax to include additional services such as car repair, computer installation and repair, landscaping, janitorial work and pet care. Beshear’s plan would also tax admission to fitness centers, golf courses, country clubs and overnight trailer campgrounds.

“Kentucky Competes” is a fair, equitable start to developing a modern tax plan for the state, Beshear said, but he acknowledged the challenge of maneuvering such legislation through the General Assembly with elections looming in November.

Beshear briefed Democratic and Republican leaders in the legislature of his proposal and said he sought no commitments during the meetings.

In fact, Beshear said he only wants his tax proposal voted on once consensus had been reached between House and Senate leadership.

“We’ve got to find common ground if we’re going to have any success here, and this’ll be a difficult process, no question about it,” Beshear said. “I can guarantee nobody that we’re going to have success here, but I can guarantee you this: If we don’t have a proposal out here and start talking about it, we won’t have any success.

“I’m confident that everybody is going to take this seriously and is going to sit down and have some very serious, deliberate discussions,” he continued. If tax reform is unsuccessful, the two-term Democratic governor said he would pursue the issue through his remaining time in office.

Many of the 22 proposals in “Kentucky Competes” originated from Beshear’s tax reform commission chaired by Lt. Gov. Jerry Abramson.

Rep. Rick Rand, D-Bedford, will file a vehicle bill for Beshear’s tax proposal, though he declined to support “Kentucky Competes” outright. 

“I’m not going to say I support this part or that part because I think my role will be to facilitate those types of discussions,“ the House Appropriations and Revenue Committee chairman said.

Fiscal impact of ‘Kentucky Competes’

Here’s the projected impact of Gov. Steve Beshear’s $209.8 million tax reform package once fully implemented. Figures were provided by Beshear’s office, and those in parentheses denote tax revenue loss.

>Reduce individual income tax rates ($180.1 million)

>Enact an earned income tax credit at 7.5 percent of the federal credit ($72.75 million)

>Lower the top corporate income tax rate from 6 percent to 5.9 percent ($6.4 million)

>Allow Kentucky-based businesses that operate in multiple states to base corporate income only on gross sales (i.e. single-factor apportionment) rather than the three-pronged approach factoring sales, property and payroll currently used ($154.5 million)

>Create an angel investor tax credit for small business investments ($3 million)

>Expand the research and development tax credit to include human capital ($4 million)

>Double the new markets tax credit ($5 million)

>Exempt inventory from state property tax ($7.2 million)

>Eliminate state property tax rates for certain classes of personal property ($5 million)

>Create an income tax credit for bourbon companies ($13.3 million)

>Exempt certain equine agriculture products from sales and use tax ($14.8 million)

>Exempt sales tax on pharmaceuticals for food animals ($4.8 million)

>Reduce wholesale tax on beer, wine and distilled spirits from 11 percent to 10 percent ($16 million)

>Repeal distilled spirits case sales tax ($100,000)

>Increase tax rate on cigarettes to $1 per pack, increase tax rate on other tobacco products, and tax e-cigarettes at 20 percent of value, $124.5 million

>Restore cigarette rolling papers tax, $800,000

nBroaden sales tax to include selected services, such as landscaping, automotive repair and pet care, $279.9 million

>Clarify that sales tax is applicable to all prewritten software, regardless of delivery method, $5 million

>Apply sales tax and transient room taxes to entire hotel accommodation price, $4.7 million

>Reduce retirement income exclusion for taxpayers with federal adjusted gross income of more than $80,000 and phase out for adjusted gross income of more than $100,000, $176.3 million

>Phase out $10 individual income tax credit, $32.8 million

>Require same income tax filing status for married couples at state level as federal level, $72.8 million

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  • This proposal looks better than the original so-called 'Blue Ribbon' tax panel proposals.

    However, still too much corporate welfare.  

    If one can afford horses one can afford to feed them without tax breaks.  Spirits industry is doing just fine without more tax breaks.  Since Supreme Court defines corporations as people they should not be exempted from paying the same taxes as people, i.e., sales, property and payroll. ( See above.) .  Whatever happened to the 'free market' philosophy where businesses rise and fall on their ability to sell their products and services in the competetive marketplace without government interference?  Seems we like govt. interference when it involves corporate welfare but not living wage, safety and environmental regulation.  Can't have it both ways.

    The retirement income exclusions have changed from the original.  Guess Steve was feeling the heat!  This proposal makes more sense in that it taxes those who can most afford it. However, we still should not be increasing taxes on retirees while giving tax breaks to horse owners, distillers and other corporate interests.  Retirees have paid all forms of taxes their entire working lives.  They deserve a little leeway in their retirement years.  Besides,  they have more time to contribute to the economy by spending more on leisure activities in retirement if they have more to spend.

    Tax reform proposal still needs work.  What about increasing taxes on investment and dividend income to the level of ones tax bracket?  What about phasing out all loopholes and taxing all people and businesses at a progressive and fair rate with no deductions, loopholes etc.  That would be real tax reform that would probably lower tax rates across the board.