Local officials hold judgment on possible tax changes

But fees on food, pensions drawing criticism from many

By Kevin Wheatley Published:

A report detailing possible options to restructure the state’s tax code has drawn a mixed reaction, but officials say they’ll reserve judgment until final recommendations are made.

Economic consultants with the University of Kentucky and University of Tennessee hired by Gov. Steve Beshear’s Blue Ribbon Commission on Tax Reform presented a 114-page report during the 23-member commission’s meeting Wednesday.

The economists predicted the state would have a $1 billion structural imbalance in its budget by 2020 without major changes in the state’s tax code.

Some of the options, which the economists say are not exhaustive and not recommendations, include adding a sales tax on groceries, lifting tax exemptions for retirement accounts and pensions, charging a sales tax for select services, offering an earned income tax credit for low-income families, allowing local governments to impose sales taxes, and overhauling aspects of the business tax structure.

The authors say the possible options would broaden the state’s tax base and improve its competitiveness economically.

“Just as there are many routes to the same destination – some shorter, others faster, and some more scenic – the Commission should view these options as alternative routes to a different tax system, but with varying implications for adequacy, elasticity, competitiveness, fairness, and simplicity,” the report says.

The panel, chaired by Lt. Gov. Jerry Abramson, is scheduled to recommend tax reforms for the 2013 legislative session by Nov. 15.

Kentucky Chamber of Commerce President Dave Adkisson said he was glad the economists acknowledged the state’s need to foster a competitive business environment through its tax system.

High income taxes at the state and local level discourage business here, Adkisson said, and a structure based on consumption rather than labor would be favorable here.

While the chamber has weighed in on the tax issue, it has not supported specific options presented Wednesday, Adkisson said.

“A lot will depend on whether the commission can come to a consensus,” Adkisson said.

Rep. Carl Rollins, D-Midway, said he would need to see details of proposed tax reforms before taking a position on the matter.

However, he called a proposal to tax groceries “a bad idea” and said he was interested in further exploring the option of taxing retirements and pensions, which could bring in $145 million annually according to the consultants’ report.

“I’m not particularly in favor of (taxing pensions) either, but if that were applied directly to the pension shortfall, then that may be considered,” Rollins said. “I don’t know that it would pass, and I don’t know that I could support it. I’d have to see the details.”

Rollins says he supports closing tax loopholes and adding some services to the state’s sales tax system.

“But you have to remember too that the sales tax is a regressive tax,” he said. “That hits poor people harder than it hits rich people.”

Others have immediately voiced opposition to some options presented. Shirley Clark, vice president of Kentucky Public Retirees, said the group met Thursday and voted unanimously to oppose taxing pensions.

She noted that retirees had cost-of-living adjustments cut in the current budget and both public and private retirees get the current tax break.

“We just feel like in our older ages that we pay enough taxes, and we would very much be against it,” Clark said.

Kathleen Morrow, a self-employed consultant, and Susan Goddard, a retired state worker, both said they opposed any tax on groceries. Both spoke about the issue while shopping at Kroger in Brighton Park Shopping Center Thursday.

“You know the best tax reform? Quit wasting money,” Morrow said. “I mean, come on. This is absolutely insane.”

While her family wouldn’t go hungry, Morrow said a tax on groceries could be “devastating” for low-income families, who would receive a tax credit in the option presented by economists.

A tax would also have an impact on Goddard, who said her family consumes a lot of groceries.

“A lot of times I give gifts of food to people who are in need,” she said. “It would really hurt us. Plus, we try to eat as much healthy food and everything. A lot of times that and produce can be expensive.”

A local sales tax, also part of the options presented, could help second-class cities like Frankfort finance projects while keeping residents involved in the process, interim City Manager Walter Wilhoite said.

Local sales taxes in other parts of the state and nation, such as Tennessee, Indiana, Virginia and Illinois, must be approved by referendum and fund specific projects, he said.

“A lot of places that have it are able to fund things that the community wants, and there’s only so many ways we can generate revenue by taxation,” Wilhoite said.

“… If the community really desires something, then, under the current system, you’re going to have to cut some of your basics to get some of the extras. This way, if the community wants something, the community can help pay for the extras with a tax.”

But the tax reform commission’s work will be fruitless without legislative approval.

Rollins says he believes 2013 will be an ideal time to pass reforms because there will be no fall elections next year.

“I think this next year offers a good opportunity,” he said. “Now whether we take it or not, who knows? But I certainly would be in favor of it if we can come up with some good ideas.”

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