Kentucky: Competitive for Businesses, Competitive for Families

When Governor Beshear authorized a Commission to tackle tax reform early last month, he outlined clear goals for the 22 Commissioners. In the words from the Governor’s Office:

  • Fairness: The tax system should treat people equitably. The Commission will review the tax burden that different taxpayers shoulder, from Kentucky families to Kentucky businesses, from small businesses to big businesses, and within different industry sectors in the state.
  • Competitiveness:  Any changes to the tax system should ensure that Kentucky continues to attract jobs and investment to the state, while keeping and protecting the jobs and businesses we already have.  The Commission will review how Kentucky’s tax environment compares to other states and identify ways to improve business tax competitiveness.
  • Simplicity and Compliance: A tax system should be easy to understand and follow. The Commission will make recommendations to ensure compliance with Kentucky’s tax system is simple for individuals and businesses and to ensure efficient administration by the state.
  • Elasticity: The tax code should allow state revenue performance to mirror economic performance.  While Kentucky’s code has performed relatively well during the recession, revenue growth has not kept pace with changes in the economy.
  • Adequacy: The Commonwealth’s tax structure should generate sufficient funds to support critical state services.  The Commission is charged with reviewing the adequacy of revenues from the current tax structure and making recommendations for improvement.

Yesterday, the Commissioners held their first official meeting in Frankfort. The first three hours were spent in a boot camp of taxation principles with Greg Harkenrider (dubbed as Professor, by Lt. Governor Abramson), deputy executive director of the Governor’s Office for Economic Analysis. Harkenrider walked the panel through almost 80 slides, explaining the principles behind the five goals proposed by the Governor. The bulk of the time was dedicated to Competitiveness and Adequacy.

Making Kentucky a destination for businesses to build and locate is rightfully the goal of the Commission. And an adequate tax system that generates enough money to fund the services on which so many families rely is also a key component of tax reform. As Bill Fox said in his well-known 2002 report, “The public services offered by Kentucky state government and the tax structure used to finance these services reflect the values and priorities of Kentuckians.” Tax fairness, also, needs to be more than a state goal – it needs to become a reality in any tax proposal the Commission puts together.

Right now, Kentuckians making an average of $36,000 currently pay a larger share of their income in taxes than those making an average of $957,500 when you take into account sales, income, and property taxes. This would get only worse if the sales tax was increased, or if the individual income tax was eliminated.

Information from Institute on Taxation and Economic Policy: http://www.itepnet.org/wp2009/ky_whopays_factsheet.pdf

As the Commission continues to meet and discuss these important goals between now and November 15, we hope that they not only emphasize how competitive Kentucky is for businesses, but also how competitive Kentucky is for families.

One way to help both Kentucky families and businesses is to consider a state, refundable Earned Income Tax Credit. The federal EITC has increased employment levels and decreased use of welfare assistance among single parents and has significantly reduced child poverty. The federal EITC is credited for lifting more children out of the poverty in the United States than any other program. A state EITC would build on the benefits of the federal EITC and stimulate Kentucky’s local economies by boosting consumer spending. Studies show that when families receive their federal EITC checks, they quickly spend them on things like groceries, childcare, transportation and health care costs.

Enacting a state, refundable EITC is one way to improve Kentucky’s competitiveness – twenty-five states have an EITC. It’s time Kentucky enacts one too.

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