Herald-Leader Editorial

Beshear, Make case for tax reform

Overhaul crucial to other state woes

December 19, 2012 

Throughout his first term, Gov. Steve Beshear shunned the idea of reforming Kentucky's tax laws, usually saying a recession is no time to raise taxes on anyone.

Instead, the governor joined with the General Assembly in cutting budget after budget after budget, a collective total of $1.6 billion, despite the pain those cuts inflicted on education at all levels, social services, health care and other essential state programs.

Shortly after winning re-election, Beshear saw the light about the urgency of the need for changing an antiquated tax system that was failing to deliver the revenue needed to fully fund essential services long before the recession ratcheted up demands for those services.

Perhaps the governor made the political decision not to respond until after he secured re-election. Or his conversion truly may come from a belief the Kentucky economy has recovered sufficiently to deal with the tax increases that must inevitably be part of true tax reform, even reform that is revenue neutral overall. The important thing is he did come around.

Monday, his tax reform commission, headed by Lt. Gov. Jerry Abramson, recommended 54 changes to the tax code that, if approved by the General Assembly, would generate $659 million in additional state revenue annually. With the report in hand, Beshear now must decide how much of the panel's work he wants to embrace and when he should ask the General Assembly to act on it.

Really, though, those two decisions will be the easy part. The heavy lifting is the tremendous sales job he must ace if he wants to get tax reform done. And it's a twofold sales job.

On one level, if he champions the full body of the commission's work, he must sell a package that would get the bulk of the new revenue ($475 million) from changes in the personal income tax (in particular, retirement income) while the corporate world would get a $110 million tax cut, and why the move to apply the sales tax to services would be so modest (generating $176.4 million at most).

To say the least, this imbalance between personal and corporate taxes and stressing taxes on income over consumption needs a bit of explaining.

On another level, Beshear may have an even tougher sales job. The legacy of his first term as a caretaker governor who spurned tax reform in favor of repeated budget cuts is the albatross he must rid himself of now because it reinforces the notion, recently voiced by new Senate President Robert Stivers, that state government doesn't have a revenue problem but rather a spending problem.

State government does have a revenue problem, a tremendous revenue problem documented repeatedly by at least a dozen studies of tax reforms over the past 30 years.

If Beshear truly wants to solve this problem and change his legacy from caretaker to champion of tax reform, he has to do justify his change of heart.

He has to satisfy a majority of the General Assembly, of course. But before he can get their attention, he has to make his case to a majority of their constituents. And that's a sales job he can't ace from his office on the first floor of the Capitol. He has to get out there among 'em.

We wish him luck because we believe tax reform — real reform that brings a 1950s tax code into the 21st century, that is equitable and that gives Kentucky an adequate, sustainable revenue base to fund essential services and programs going forward — is the most urgent issue facing Kentucky.

Without it, addressing some of the state's other pressing issues, such as the unfunded liability of public pension plans, properly and completely is impossible.

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