Herald-Leader Editorial

Will legislature find the courage? Beshear calls for tax reform this year

Beshear calls for tax reform this year

February 8, 2013 

If only Senate President Robert Stivers were right and economic growth alone could pull Kentucky from its fiscal hole, how much easier the path ahead would be for lawmakers.

Alas, revenue is projected to increase just 3 percent next year — too little to cover existing expenses, never mind solving the huge unfunded liability in the state pension system, a problem that gets costlier the longer it's allowed to fester.

But here's a worse rub: Let's say Kentucky's economy did take off like an X-15 rocket. Our jalopy of a tax code could not keep up.

Kentucky's tax structure is so obsolete it cannot capture growth in today's economy. Without tax reform, the state will be $1 billion short of bringing in enough to pay for basic services by 2020.

While Stivers, R-Manchester, indulged in wishful thinking about economic growth paying for the pension fix, Gov. Steve Beshear was laying out the challenges in refreshingly frank terms in his State of the Commonwealth address.

"The question for us in this room," Beshear told lawmakers, "is simple but soul-searching: Are we courageous enough to invest in our children's future?"

Modernizing the tax code is the necessary first step to investing in the future and digging out from under the pension underfunding that recently produced a lowering of the state's credit rating.

As Beshear made clear, the cuts in state spending required by the recession have inflicted real harm on education and other vital services. Kentucky can't afford to slip further. Carving $300 million a year out of existing programs to fund a pension fix would keep the burden on future Kentuckians by further undermining education at a time when we should be expanding early childhood programs.

"As we work to make our public pension system whole again, I will not allow our school children to be collateral damage," said the governor, who should stick to that vow.

Beshear also said, "We need a tax structure that's fair to all of our citizens and easy to understand, that helps recruit business, not drive it away, and that — because it's aligned with a 21st century economy — is able to bring in the revenue we need to fund critical services."

Who could argue with those goals? Thanks to the Blue Ribbon Commission on Tax Reform and a legislative study of pension reform, a lot of ideas are on the table.

Beshear seems sincerely eager to work with lawmakers to develop a consensus package that can be enacted, probably not in this short session, but in a special session later this year. Lawmakers from both parties appear open to collaboration, he said.

It won't be easy. Big accomplishments never are. If lawmakers heed Beshear's call to "think strategically and act aggressively and courageously," they will be rewarded by a quick upturn in Kentucky's image and financial standing, and, more importantly, by history.

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