Herald-Leader Editorial

'Revenue neutral' simply a cop-out

Tax reform must raise money now

September 28, 2012 

Kentucky Chamber of Commerce President David Adkisson recently told CN|2 Pure Politics the state's business community hopes that any proposal emerging from a current study of tax reform would be revenue neutral.

"We would hate to see an over-reaction like, well, state government had to cut and cut and cut, so we must need more taxes," Adkisson said. "We would picture that as a knee-jerk reaction coming out of this recession, which is ill-timed and not good for the state."

"Revenue neutral" has been the mantra dominating any discussion of tax reform in Kentucky for at least a decade because state government can "cut and cut and cut," but heaven forbid it raises anyone's taxes.

But the bottom line is that all the cutting in recent years has had economic consequences that negatively affect the state's business climate.

Case in point: For years, Kentucky politicians have touted the need for an educated work force capable of luring the kind cutting-edge, high-tech (or whatever fancy description you want to use) jobs that could get the Bluegrass State's economy humming along like Silicon Valley in its prime.

But we aren't going to get there very fast when those same politicians turn around and "cut and cut and cut" funding for public colleges and universities, forcing those institutions to sock students and their families with hefty annual tuition increases (tax increases by another name) that make obtaining a higher education difficult if not impossible for many young Kentuckians.

You want an educated work force? Someone has to pay for it. The state's business leaders understood this reality a couple of decades ago. Some of them led the charge in passing the Kentucky Education Reform Act and the 20 percent increase in the sales tax that financed it. Now, after years of public education at all levels feeling the pain of "cut and cut and cut," today's business leaders want revenue neutrality.

Of course, the economic consequences of all the recent budget cutting extend beyond the impact on education. Most essential services provided by the state have been affected. But forget cuts to education and other state services.

Move on to Barron's, a national business magazine, which recently ranked Kentucky's fiscal health 47th in the nation, largely because we rely too heavily on debt and don't pay our pension bills on time.

Two points immediately come to mind about that ranking. First, being 47th in the land in any ranking like this can't be a great selling point for attracting economic development that can improve the business climate of the state.

But the more important point involves the reason we borrow too much and can't pay the pension bills. As the consultants helping the tax reform panel note in their report, Kentucky's tax structure doesn't produce the revenue growth necessary to provide basic services to the state's residents. This was not a revelation. Report after report after report (nine in the last 20 years) have reached the same conclusion.

And if we're not producing enough revenue growth to meet the state's needs now, revenue-neutral tax reform — even if it produces future growth — will not meet the state's immediate needs at the time it's enacted.

At the outset of this study of tax reform, Gov. Steve Beshear cited several tests that the finished product should meet: fairness, competitiveness, simplicity and compliance, elasticity, and adequacy. Neither the commission in its recommendations nor lawmakers in their future consideration of this issue should sacrifice the last test, adequacy, on the altar of revenue neutrality.

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