KY Forward: Kentucky needs to take its future in its own hands and make tax system fairer
media mentionThursday, April 3, 2014
The General Assembly has just passed another inadequate state budget. And once again, it has failed to give Kentucky a tax system that will allow it to compete in the 21st-century economy.
As a legal aid attorney and education advocate for 35 years, I’ve long witnessed firsthand how our state budget and revenue system fail to serve working families or to create adequate opportunities for the next generation.
Cuts to higher education and increased fees for community college students do not bode well for our workforce and employers. Higher student debt, the non-restoration of $1.5 billion in budget cuts since the recession and continuing unfunded teacher pension liabilities, among other issues, remain unaddressed.
One big reason is that due to a number of unfair and costly special interest tax breaks, our revenue system does not generate the resources required to strengthen investments in education, health and family services, public protection and safety, infrastructure and all the other areas where the new budget falls short.
Another major flaw is that low and moderate income Kentucky families pay a higher share of their income in taxes than the wealthiest among us. According to the Institute on Taxation and Economic Policy, in 2013 Kentucky’s bottom 20 percent income group paid on average 9.1 percent of family income in state and local taxes; the next higher and middle income groups paid 10.8 percent; while the top 5 percent of earners paid 7.3 percent, and the top 1 percent only 5.7 percent. This is a complete inversion of the principle of progressive taxation, where those with the most pay more than those with less.
Enacting a state earned income tax credit would improve tax fairness. It would provide a modest annual benefit to more than 400,000 lower-income working families, who will put that money right back into local economies to pay for groceries, school supplies, car repairs and other essentials.
At the same time, limiting income tax deductions and exclusions that benefit only higher-income taxpayers would make our system fairer and generate needed revenue.
Our sales tax also has problems that tax reform could fix. Despite the substantial shift in economic activity from the production of goods to the provision of services, goods still constitute the bulk of the sales tax base. This allows a large volume of economic transactions to escape taxation. Expanding the base to include some services — especially luxury services — would generate more revenue as well as put businesses that sell services on the same playing field as those who sell goods.
Finally, the legislature should close loopholes that allow profitable businesses to avoid paying their fair share toward investments in our workforce and infrastructure.
We have the tools we need for real progress in Kentucky. The Governor’s Blue Ribbon Tax Commission recommended a broad menu of reforms that would generate more resources by insuring that wealthier people and businesses contribute their fair share. Reform would produce the revenue necessary to prepare workers with appropriate education, health care and training; ensure adequate infrastructure for our growing businesses, especially our manufacturing sector; ensure public health and safety, including a safe and aesthetic environment; and develop renewable energy sources for the long-term future.
This may sound like a lot to ask. But in the end it will be well worth it. Mature citizens understand that investment is essential in order to obtain future benefits. Kentucky has a wealth of natural and human resources. We need to take our future in our own hands and shape it into what we want it to be, and not allow ourselves to be victimized by circumstances and the initiative of others.
The time for tax reform is now. The foundations have been laid. Let’s build on them.