Governor Beshear recently introduced his tax reform plan “Kentucky Competes,” a step in the right direction for continuing the dialogue on tax reform and the need to invest in Kentucky children and families. We applaud the Governor for putting his plan out there as a stepping stone for further conversation.
We want every child to have the opportunity to grow and be successful. However, deep cuts to investments in children over the past few years due to budgetary problems have left many children in low-income families without the necessary supports they need to thrive. Cuts to the Child Care Assistance Program and the Kinship Care Program in April 2013 were just the latest in several rounds of disruptions that hurt children. Investments for per pupil funding for local schools and Family Resource and Youth Service Centers have been flat over the last few years, and there has been little investment in crucial behavioral health services, like Community Mental Health Centers. We also know that investments in young children and families through home visiting and preschool make a significant impact on our future workforce.
Fortunately, the Governor and legislators are supporting restoring funding to the Child Care Assistance program and shoring up K-12 funding in the next two year budget. The Governor also included funding for home visiting and expanded preschool in his proposed budget. We cannot thank the Governor enough for his commitment to kids in his budget despite budgetary constraints.
Yet, we know that even if the next two year budget restores some critical investments, our outdated tax system will not be able to sustain the needs of Kentucky kids long-term. That’s why it is time for our state leaders to think seriously about reforming our tax system to work better for everyone.
The Kentucky Competes Plan has some great components such as the inclusion of a state Earned Income Credit (EIC). A state EIC could help hard-working families make ends meet and piggyback on the success of the very successful federal EIC. A state EIC encourages work and promotes economic activity which is a win for all. However, the Kentucky Competes plan includes an EIC at 7.5% of the federal EIC, and we know a state EIC would help more families at 15% of the federal EIC, as was proposed by the Blue Ribbon Commission on Tax Reform in 2012. We hope our legislators will look at increasing this critical investment to 15% of the federal EIC as they consider the Kentucky Completes Plan.
While we believe the Kentucky Completes Plan is a step in the right direction, we do have some unanswered questions. The plan is actually fairly different from the Blue Ribbon Commission on Tax Reform’s recommended plan as it raises much less revenue. While the Commission’s tax reform plan would have raised over $659 million, Kentucky Competes only raises $210 million upon implementation. Also, the Institute on Taxation and Economic Policy (ITEP) suggests Kentucky Competes is not going to change the distribution of taxes for individuals, a problem when those earning around $40,000 pay a larger portion of their income in taxes than those earning more than $100,000.
We commend the Governor for taking the first step, and we hope that legislators seriously consider tax reform and look at ways to improve the Kentucky Competes Plan. It is definitely time for our state leaders to tackle tax reform. Kentucky’s future depends on it.