Tax report proposes changes that would raise state revenue by $659 million

bmusgrave@herald-leader.comDecember 17, 2012 

Kentucky Lieutenant Governor Jerry Abramson

FRANKFORT — After spending almost a year analyzing the state's tax code, a 16-member task force released a final report Monday that would generate about $659 million in extra revenue every year.

Some of the most controversial proposals include raising taxes on pensions, assessing a 1 percent utility tax on businesses and residents, increasing the cigarette tax by 40 cents to $1 a pack, expanding the sales tax to include more services and placing a $17,500 cap on an individual's itemized deductions.

To help offset some of those increases, the commission proposed cutting $100 million a year from corporate taxes, slightly lowering personal income tax rates and providing an earned-income tax credit for low-income workers.

But it's not clear if the legislature will consider any of the proposals offered by Gov. Steve Beshear's Blue Ribbon Commission on Tax Reform when lawmakers convene their 2013 session on Jan. 8.

Lt. Gov. Jerry Abramson, chairman of the commission, said the commission's plan would "modernize our tax structure, making it fairer for families and businesses."

A group of economists hired by the commission this summer said Kentucky's tax system has not grown with the state's economy. By 2020, the gap between what the state needs to provide basic services and the revenue it generates will be $1 billion a year, the report projected.

Beshear thanked the commission for its work and said he will be studying the group's recommendations.

"I will review this report and will discuss the findings with legislators as we seek ways to make sure our state has the resources it needs to meet the needs of our people," Beshear said.

Beshear has not ruled out bringing a tax-reform proposal to the legislature in the upcoming session, but it's unlikely. Passing tax reform in an odd-numbered calendar year requires support from a super-majority of lawmakers. If Beshear waits and calls a special legislative session later this year, any tax proposal could be approved by a simple majority of lawmakers.

Senate President-elect Robert Stivers, R-Manchester, declined to comment Monday on the commission's report. But Stivers said in a previous interview that he believes Kentucky's financial woes are caused by its spending, not a lack of revenue.

House Speaker Greg Stumbo, D-Prestonsburg, also was not available for comment on Monday. Stumbo has previously said the commission's report includes some recommendations he favors but that Kentucky's lower- and middle-income families should not face any "additional burden."

But Kentucky's cash-strapped public pension system may force lawmakers to consider tax increases. A separate task force recently concluded that the state's public pension system will soon need $300 million more a year.

Even if the state's revenues grow by 3 percent, the bulk of all new revenue will be taken up by the state's ballooning pension obligations, said Rep. Rick Rand, chairman of the House budget committee.

"We are either going to have to find additional revenue or make additional cuts to resolve the pension problem," said Rand, D-Bedford.

Rand and Sen. Robert Leeper, chairman of the Senate budget committee, said Monday that no date has been set for a meeting with Beshear.

Beth Musgrave: (502) 875-3793. Twitter: @BGPolitics. Blog: bluegrasspolitics.bloginky.com

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