Phil Moffett: Switch flat-rate sales tax on all goods, services

January 18, 2011 

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Phil Moffett

PABLO ALCALA | STAFF

Kentucky stands at a crossroads. We are buried in bonded debt and underfunded state employee pension plans and getting deeper in the hole each day. Historically, Kentucky has been an economic and job creation laggard. The current recession brought our fiscal and economic shortcomings front and center.

We have the opportunity to adapt and improve Kentucky for generations to come. Many states are making changes to become even more competitive. Kentucky cannot wait to respond; we must lead.

Let's start with basic principles: Good state tax systems have a simple, low, flat rate on as broad a base as possible, treating all taxpayers the same and all products equally. Exceptions open the door for political manipulation, increasing market risk and uncertainty and quickly becoming the job-killing tax system we have today.

Currently, Kentucky's tax system violates every one of these principles. Our incomprehensible system layers over 240 state taxes, fees and surcharges on individuals and businesses every day. We discriminate based on income, cars owned, diet, sin (alcohol and tobacco), consumer purchases, physical activity, cell phone bills, insurance policies, just to name a very few. No person or business in Kentucky can determine their state tax burden. This is the definition of a bad business environment.

I will replace all 240 state taxes, fees and surcharges with a single-rate, consumer sales tax on all goods and services at the retail level. The goal is to be "revenue neutral," keeping tax receipts as close as possible to current levels. I believe this rate can be held very near our current sales tax rate of 6 percent.

What does this mean for you? Pure transparency, every time you make a purchase your tax burden will be detailed on your receipt. No income taxes for individuals or businesses. No filing state tax returns. No embedded taxes on products. No state property taxes. You only pay taxes when you spend your money.

What does this mean for jobs? We become the place where companies can be profitable, and profitable companies hire more people. Not only will relocating companies find prosperity, so will all existing businesses.

What does this mean for state government? Currently, sales taxes are efficiently collected with an Internet-based system. The state revenue department can be streamlined when millions of individuals and businesses no longer file tax returns. Sales tax projections are more reliable than other forms of taxation, including income taxes.

Some say sales taxes are regressive, punishing low-income Kentuckians when they buy food, prescription drugs or medical services. This is not true. Embedded in the sales price are all of the taxes paid while producing, shipping, preparing and retailing these goods and services. My tax system eliminates many of these taxes and replaces them with a retail sales tax. The net price for products and services will largely remain the same.

Why would elected officials be afraid of such a tax system? Simply put, it will be the single largest transfer of power from state government to "we the people" since our commonwealth was established. This reform plan hinders the efforts of lobbyists and legislators to take money from us and spread it around to extend their political careers.

I like the sound of that.

Phil Moffett, a Louisville businessman, is a Republican candidate for governor.

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