Gov. Steve Beshear’s tax reform package met some criticism Tuesday as lawmakers on the House Appropriations and Revenue Committee questioned parts of the plan during a discussion-only meeting.
Lt. Gov. Jerry Abramson, who chaired Beshear’s tax reform commission that recommended many aspects of the governor’s plan, talked about the basics of the 22-point proposal, which could generate some $210 million in new tax revenue if fully implemented.
Abramson fielded questions on such issues as the refundable earned income tax credit, adding certain services to the state’s 6 percent sales tax and reducing retirement income exclusions for retirees with more than $80,000 in annual income. He said many of the recommendations were made to keep Kentucky competitive with surrounding states and other “competitor” states such as North Carolina and Mississippi.
The lieutenant governor stressed that Beshear’s plan is a launching point for lawmakers. Beshear has said he will not seek a vote on a tax modernization plan that does not have consensus among House Democratic and Senate Republican leaders.
“The governor said nothing in here’s in stone or in concrete,” Abramson said. “We’re literally at a point where the discussion needs to begin, the debate needs to begin, and this is our best shot in terms of what we see in a balanced approach that will move the commonwealth forward.”
Leaders in the House and Senate have said they’ll keep an open mind when considering Beshear’s proposal, but House Speaker Greg Stumbo said getting the plan beyond closed-door discussions would be “possible but daunting.”
Rep. Rick Rand, chairman of the House Appropriations and Revenue Committee, did not guarantee a tax reform package would come before his committee for a vote. The House must act first on revenue-generating bills, and Rand said the bill could only move forward with consensus among House Democrats and Senate Republicans.
“Potentially,” Rand, D-Bedford, said after the meeting about prospects for a vote. “I mean, if there’s an agreement.”
Beshear’s proposal relies heavily on cutting tax rates for individuals and large corporations; offering a refundable earned income tax credit worth 7.5 percent of its federal counterpart; and allowing corporations to base income tax solely on gross sales for the bulk of the anticipated tax losses.
Kentucky’s equine, bourbon and other signature industries would also see tax breaks if Beshear’s plan is implemented.
Increasing taxes on tobacco products — including a new 20 percent tax on e-cigarettes — as well as broadening the sales tax base with select services and reducing the retirement exclusion for pensioners with more than $80,000 in annual income and phasing it out entirely for those with more than $100,000 provides much of the anticipated new revenue. The state currently exempts the first $41,110 in gross annual income for retirees.
Though some began their statements with appreciation that tax reform will be debated this session, representatives from both parties questioned certain proposals during Tuesday’s committee meeting.
Rep. Addia Wuchner, R-Florence, said the retirement proposal has prompted the greatest number of calls to her office. Rep. Jody Richards, D-Bowling Green, suggested establishing a stair-step approach to the retirement exemption.
“Otherwise that could really be onerous, could really be harmful,” Richards said.
Rep. Jim Wayne, D-Louisville, praised the proposed earned income tax credit, but he noted Beshear is pushing for half the amount recommended by the tax reform commission, on which Wayne served as an ex-officio member. He also raised a concern with taxing labor on installation and repair of property, which includes plumbing or electrical work.
“For low-income folks, that can hit hard, and that does impact their regressive sales tax they have to pay,” he said.