Kentucky lawmakers have mostly resisted the impulse to raise taxes in the past five years of economic doldrums. Will they be more receptive to selectively increasing some and lowering others, under the rubric of tax reform?
It’s a hard sell in Kentucky, where taxpayers view tax policy through a skeptical lens and distrust anyone pitching the proposition that government needs more of their money to skimp by. But three economists focused on pumping up revenue this week when they presented the governor’s tax reform commission a range of reform options. Without change, they warned, Kentucky could face a $1 billion shortfall within eight years.
A few of the possibilities include expanding the 6 percent state sales tax to cover groceries and services, lowering the income tax rate while eliminating deductions such as those on mortgage interest and charitable giving, and reducing tax breaks on retirees’ pension income.
Taxpayers have to remember that, whatever tax cuts might be part of the package, the ultimate goal is to bring in more money.
Citizens generally welcome tax relief, then forget, and wax wroth when politicians later attempt to restore the previous status quo. The “Bush-era” tax cuts were originally scheduled to expire at the end of 2010, but when the deadline drew near, Americans had grown accustomed to keeping more of their paychecks, so the discontinuation of tax “breaks” amounted to a de facto tax increase. Republicans in Congress preferred to leave the rates unchanged for everyone while Democrats wanted to let the cuts expire for rich folks. President Obama settled on a compromise two-year extension for everyone, along with additional cuts in Social Security taxes and sundry rewards for segments of the population.
Two years later, we’re back in the same boat, with the Bush tax cuts and embellishments to them again scheduled to expire on Dec. 31. Hardly anyone is comforted by the old truism that holds all good things must come to an end. There are dire warnings of a “fiscal cliff” dead ahead, portending hardship in the land and perhaps even another recession if the reductions aren’t extended anew.
Under tax reform, many Kentuckians would mourn the loss of tax breaks they now take for granted. The sales tax exemption on groceries and prescription drugs helps people of modest means buy goods meeting basic needs while permitting taxation of discretionary purchases. The mortgage interest exemption addresses the need for shelter, nearly as compelling as hunger. Exempting pensions from income taxation succors older people on fixed incomes. The 4 percent ceiling on property tax growth came three decades ago in response to a nationwide taxpayer rebellion against onerous levies that had homeowners in fear of dispossession.
Legislators are wary. State Senate President David Williams told The Courier-Journal he’d rather see the state control spending on Medicaid and public pensions. He’s a Republican, but members of the other party also get nervous about tax code tinkering. “Tax reform generally means somebody pays more and somebody pays less,” House Speaker Greg Stumbo, D-Prestonsburg, told the paper.
Gov. Steve Beshear, who’ll try to decide what’s politically feasible after getting the commission’s recommendations by Nov. 15, assigns tax reform a high priority – right up there with his star-crossed campaign for expanded gambling.