Time for tax reform is now
We've held off modernizing Kentucky's tax code for several years now, not wanting to jeopardize the beginning stages of our recovery from the global economic recession.
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#1 Jun 6, 2012
Kentucky's tax system is inadequate, unfair, inflexible, and lacks accountability. Changes to our tax system must be made to increase standard of living, fund critical programs, and support the quality of life our Commonwealth deserves. The 21st century global economy demands a highly educated, trained, skilled, and healthy workforce to compete successfully and Kentucky falls significantly short of these standards. Kentucky's inadequate revenue stream is not just a function of the recession, but reflects a chronic structural deficit.
Revenues are inadequate because our basic system is dependent primarily on income and sales taxes. The income tax was established in 1936, modestly tweaked in 1950 and is essentially flat. Kentucky's income tax structure taxes earners at the lower end at a higher rate than those earners at the top end of the scale. According to Institute of Taxation and Economic Policy, in 2007 the lowest 20% income group paid 9.4% of their income in taxes; lower and middle income taxpayers paid 10.8% while the top 5% paid 7.4% and the top 1% paid 6.1%. This is obviously not a fair distribution of the overall income tax burden. The sales tax base is comprised almost exclusively of goods while our economy has shifted away from manufacturing and production of goods toward services. Services have not generally been added to the sales tax base and a large volume of economic transactions escape taxation, in particular those that benefit higher income taxpayers. For example, Kentucky taxes utilities more than any other service. This disproportionately impacts lower income people who have little choice in consuming utility services whereas personal and business services that benefit primarily higher income persons escape taxation. Kentucky ranks 35th among states in the number of services taxed (according to The Federation of Tax Administrators, July 2007) with only 28 services taxed compared to Georgia with 160, Ohio with 68, Tennessee 67, and West Virginia 105. It seems unfair that businesses who trade in goods have to collect taxes while those who trade in most services do not.
Kentucky's current tax system does not provide flexibility for our government to address evolving social and economic conditions. We don't need to rely on a single form of taxation which limits our ability to respond to challenging economic times. Kentucky's tax system also lacks accountability as we currently give businesses tax benefits/breaks/incentives with limited public information on whether the tax breaks are working to create jobs and bring in projected revenues. Our state currently spends more on tax expenditures (exemptions, tax breaks, loopholes) than it takes in according to the Office of the State Budget Director. We need to restructure our tax system to include establishing an effective and transparent monitoring of contracts with businesses to ensure the promised jobs materialize and reward those businesses that do deliver on promised economic benefits. Surely businesses would want to promote the fact that they are effective in delivering promised jobs and worthy of incentives.
#2 Jun 6, 2012
Kentucky state revenue is not sufficient to fund the programs critical to its citizens. Since Gov. Beshear came into office we've seen $1.3 billion in cuts. Those cuts have been offset by increases in other areas, such as health care (increased Medicaid population). To generate support for tax reform, data revealed by organizations such as Kentucky Youth Advocates, Kentucky Voices for Health, and AARP, have identified reductions in specific areas of the budget, as follows:
1. Inadequate number of social workers who protect children from neglect and abuse.
2. Less funding for programs for elderly, such as Meals on Wheels, and in-home services which keep people out of nursing homes (which is more expensive).
3. Elimination of programs for 18-year olds who age our of foster care and, as a result, become homeless.
4. Insufficient funds for pre-school education which leads to under performing students and drop-outs.
5. Cut backs in mental health services which leave people with no options.
6. Lack of state financial support to higher education causes increases in tuition and puts higher education out of the reach of many families.
7. Per student spending through the basic public school funding formula has declined.
8. School districts are laying off teachers (after end of federal stimulus money).
9. Roads are not being repaired.
It is imperative that Governor's Blue Ribbon Commission on tax reform makes sure that any reform to Kentucky's tax structure brings more money into our state coffers, responsibly and fairly. Taxes are indeed, the price we all pay for civilization. We need enlightened leaders who will see our circumstances clearly and take necessary steps to ensure any proposals will contribute to our common quality of life. Payback for restructuring our tax system would be enormous as seen in benefits to education, health, roads, parks, and public safety.
#4 Jun 6, 2012
How about the nation's tax system? It's been time to fix it years ago.
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