Keeling: Election year, late start make tax hike tough sell

herald-leader ColumnistFebruary 9, 2014 

FRANKFORT — Gov. Steve Beshear shared his ideas on tax reform with the public and most state lawmakers on the 20th day of a 60-day General Assembly session. (A few legislative leaders got a sneak preview a day earlier.)

Some may think the governor was a bit late in inviting legislators to a dance that could raise taxes $326 million in the 2015 fiscal year, which begins July 1, before settling down to a $210 million annual rate when the changes are fully implemented. But not Beshear.

"Nobody gave us a ghost of a chance of passing pension reform in 2013," he said a day before releasing his tax plan. "We did it in three weeks."

True. And I'm one of the smart alecks who spread negative vibes all the way up to the day the General Assembly passed and Beshear signed something approximating pension reform. (I'm still withholding judgment on its long-term success.)

Since I'm twice shy of getting burned again, I'm not writing any early obituaries this year. However, I will say House Speaker Greg Stumbo's "daunting" description of the task that lies ahead if anything approaching comprehensive tax reform gets done this year may be a bit of an understatement for several reasons.

Everyone knew disaster was knocking at the door with a jackhammer if the only reform that truly mattered in the 2013 pension legislation didn't happen. That was General Assembly's commitment to fully fund the actuarially required contribution to the Kentucky Retirement Systems after two decades of shorting the pension plans.

With tax reform, everyone knows it's needed, very much needed. We have a tax code geared to a 1950s manufacturing economy, not a 21st-century services and information economy.

But even after years of structurally imbalanced budgets that raided every available stash of one-time money and still cut vital programs and services to the bone, too few people hear disaster's jackhammer getting closer to the door.

Plus, to get pension reform done in 2013, lawmakers approved a tax increase of about $100 million. Now, in 2014, an election year when control of the state House is at stake, Beshear is asking them to raise taxes another $326 million initially? Seriously? Democrats, who control the House now, normally are more receptive to tax increases than Republicans. This year, their receptive attitude may be strained a bit.

Finally, Beshear hasn't done much, if anything, to sell his plan to the public. Just as he has never done much, if anything, to sell expanded gambling, the signature issue of his 2007 gubernatorial campaign, to the public.

Whether it was the higher education reforms of the late 1990s, the Kentucky Education Reform Act nearly a decade earlier or the constitutional amendment that reconfigured the judiciary branch in the 1970s, big changes in Kentucky's state government have come about because leaders championing those changes spent months and years building grass-roots support for them. During his more than six years in office, Beshear has shown little inclination for engaging in such a task.

Still, I'm not saying Beshear's proposals were DOA. Particularly not the tax cuts in his plan. In an election year, they may prove too tempting for either party to ignore. Unfortunately, eating the carrots now would make it difficult to pass the more important sticks, such as extending the sales tax to some services, in the future.

I am a bit puzzled by the limited nature of Beshear's approach to taxing services. Not by the omission of professional services such as architects, engineers, lawyers, advertising agencies and the like. Where the big money is to be had, corporate use of these professional services, they are too easily exportable to firms in other states, which would mean a significant loss of business for in-state firms.

But if we're going to tax auto repairs, which tend to affect lower-income people with older cars, why aren't we taxing laundry and dry cleaning services, visits to the barber and beauty shop or even housecleaning services, where the wealthier tend to spend more?

Potential flaws aside, Beshear at least started a conversation about tax reform. The timing of his proposal makes me wonder if his real intention is to have the conversation produce results at some later date. Possibly a lame-duck special session after the November elections, since it takes a super majority (60 percent of the votes in each General Assembly chamber) to pass revenue measures in odd-year sessions.

But please, don't interpret my "wondering" as any kind of death knell for the governor's plan. I'm not writing premature obituaries anymore.

Reach Larry Dale Keeling at

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