Ky. Voices: Tax reform essential to Kentucky's future

Without change soon, economic reality is grim

May 4, 2013 

Jason Bailey is director of the Kentucky Center for Economic Policy in Berea.

Cuts being made to child care that will leave thousands of working parents choosing between jobs and family are only the latest casualty of the legislature's failure to provide the resources to meet Kentucky's needs. State lawmakers in recent years have set back our schools and universities, health care and other vital services by presiding over $1.6 billion in budget cuts.

In the recent legislative session, they passed a meager revenue bill that provides only a portion of the money needed to pay pension liabilities, and ignores everything else. The job of raising the funds to cover Kentucky's needs and reforming the tax system for the long haul remains undone.

But ducking our problems won't solve them. Five budget realities assure those problems will still be front and center when lawmakers write a new budget in January:

Economic growth is expected to remain slow.

The worst recession since the Great Depression tore a big hole in state revenue, and the slow recovery means we haven't made up much of the ground we lost. Revenue is expected to grow only slightly faster than inflation in the current budget. If job creation stays slow, unemployment will remain higher than before the recession. That means depressed sales and income tax revenues and lots of struggling people in need of assistance.

The tax system is failing.

Kentucky's antiquated tax system simply doesn't keep up with growth in the economy, making it hard to maintain services even if the economy picks up. State revenues are growing 20 percent slower than the economy, a trend that by itself will create a $1 billion gap by the end of the decade between the state's needs and the resources it can muster to meet them. Closing a variety of loopholes in our tax system would allow Kentucky to better keep pace with the cost of educating our children and promoting health and safety.

Budget tricks won't fill the gap.

Policymakers have used every gimmick they could find in recent years to keep budget cuts from being even worse — delaying bond payments, offering tax amnesty so scofflaws will pay up, underfunding retirement benefits, and raiding various state accounts. Some of these moves have hurt Kentucky's financial condition, some one-time options have been exhausted.

Federal funds are shrinking.

Federal dollars make up about 35 percent of Kentucky's state budget but those funds are being cut. The 2011 Budget Control Act set caps on federal spending that will reduce grants for schools, public safety, water treatment and other programs to the lowest level in four decades.

Kentucky's needs are many.

The $1.6 billion in state budget cuts have made college less affordable, kept new textbooks out of schools and reduced access to services for the elderly and people with disabilities. While we should be talking about new investments in early childhood education and other critical areas — and working harder to help Kentuckians become healthier and more educated — the cuts are setting us back.

Last year, I was one of 16 Kentuckians on the governor's tax commission that came up with a proposal for comprehensive tax reform to raise $659 million for Kentucky's needs. In public hearings across the state, we heard Kentuckians from all walks of life stress the need for more investment in schools, health and other resources. They told stories about opportunities lost because of a lack of resources, and of how great Kentucky could be with a stronger commitment to our future.

Our leaders should start working now to build support for the bold revenue action Kentucky must have in order to make just such a commitment.

Reach Jason Bailey at jbailey@kypolicy.org

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