Larry Keeling: Key to tax reform is legislative courage

So don't hold your breath, despite desperate need

Herald-leader columnistSeptember 23, 2012 

Larry Dale Keeling

FRANKFORT —Sheila Schuster, an advocate for some of Kentucky’s neediest constituencies and a member of a commission studying tax reform, said she was “stunned” to see a sales tax on food purchased for home consumption among the reform options a trio of consultants presented to the panel Wednesday.

“We’ve been hearing about lower-income Kentuckians paying a higher percentage of their total income on taxes,” she said. “Now, we are going to sock them … with a tax on eating?”

I can’t say I was stunned the consultants — William Hoyt and Michael Childress from the University of Kentucky and William Fox from the University of Tennessee — would include a tax on groceries in their reform menu. Surprised? Yes. Skeptical that it will ever happen? Definitely.

But not stunned, because it involves such a huge chunk of change the state is missing out on now and because, if we really want to get serious about significant tax reform, some huge chunks of missing change need to be part of the discussion. Otherwise, we’re just going through another exercise in tax tinkerization.

Nor am I totally dismissive of the idea of taxing groceries. I would be, if it were a stand-alone item, just as I might nitpick some of the other options in the consultants’ report if they had to stand or fall on their own. But judging each option in the report individually would be a mistake, and the food option illustrates why.

By its nature, a sales tax is regressive because lower-income people spend a larger share of their income on necessities than middle- and upper-income folks. And Hoyt acknowledged Wednesday that taxing groceries would make Kentucky’s sales tax more regressive.

So, you don’t go there without providing some balance, such as a 1-cent reduction in the sales tax or an earned income tax credit or both. Add some of the report’s other options for expanding the sales tax, and you might reduce the rate by more than a penny. If lower- income Kentuckians can save a penny or two on everything else they buy and get the benefit of an earned income tax credit, a tax on groceries doesn’t look nearly as bad as it does standing alone.

Similarly, you don’t ask middle- and upper-income Kentuckians who benefit from itemized deductions on their state tax returns to give them up (another option in the report) without getting something in return. But throw in a reduction in the top income tax rate, and eliminating deductions starts to look a bit better.

Should groceries be taxed and itemized deductions eliminated? We won’t know until we know what other options the tax reform commission and/or the legislature pair with them. But for discussion purposes, everything needs to be on the table.

Realistically, I doubt that I will live long enough to see either one of these popular tax breaks eliminated — or many of the other reform options in the consultants’ report adopted. Getting anything close to real tax reform through the General Assembly would require an act of political courage by a lot of state legislators not known for political courage, a miracle that will occur about the same time as the miracle of the University of Kentucky (my beloved alma mater) winning a national championship in football.

Too many Kentucky lawmakers’ definition of tax reform begins and ends with a tax cut. Even those who understand the need to balance the good with the bad in tax reform also know voters have a tendency to remember the stick (taxing food or eliminating deductions) but forget the carrot (lower tax rates or an earned income credit). And they know their opponents in the next election cycle will do everything they can to reinforce this tendency in voters. So, they bob and weave and duck and dodge whenever the subject of tax reform arises. And Kentucky suffers.

I would love for the General Assembly to prove me wrong because this state desperately needs a stable and sustainable revenue base to support the services and programs its citizens deserve, and the only way to get there is by exercising at least some of the options in the report consultants presented Wednesday.

But with the football ’Cats 1-2 and headed to Gainesville as this column was being written, I think we can rule out any simultaneous miracles in the near future. Too bad.

Reach Larry Keeling at lkeeling@herald-leader.com.

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