Herald-Leader Editorial

Ky. can't build a strong economy on tax giveaways

August 3, 2014 

Our state policy of giving away revenue to attract or retain almost any form of economic activity is magical thinking: Maybe if we just throw enough money at the economy, one day prosperity will miraculously appear.

It's akin to a family spending money on a glitzy car over, say, college tuition, figuring the emotional bump from riding around in luxury could somehow lead to economic security.

And, when that doesn't work, double down with a home entertainment system.

Of course, it never works.

Pick almost any set of economic indicators and this is clear. However, a recent analysis by economist Paul Coomes for the Kentucky Chamber of Commerce is particularly illuminating.

He found average pay per job in Kentucky last year was $46,400, or 83.6 percent of the U.S. average of $55,600. Go back a generation to 1993 and Kentucky's average was 84 percent of the national average, according to Coomes' calculations.

Coomes' findings about Kentucky's post-recession job production point to even worse times ahead. By far the biggest growth has been in a sector called "employment services," mostly temporary workers with low pay and few benefits.

No wonder 56 percent of Kentucky voters ranked "economy and jobs" as the most pressing priority in the recent Bluegrass Poll, ahead of second place "immigration" with 10 percent.

But there's little hope of economic advancement while stagnant revenue keeps us in a cycle of shortchanging education and patching up crumbling infrastructure.

Still, governors and lawmakers find new ways to rob the treasury each year with the fantastical premise of improving our lot.

This has become so pervasive that now our state forgoes collecting about $10 billion in taxes each year, almost equal to what's spent out of the general fund.

There are now almost 300 of these exemptions — called "tax expenditures" in state budget parlance.

Since 1995, the state budget director has produced an analysis of tax expenditures every two years. The long, long list includes everything from tombstones to luxury hotels, from jet fuel to lunches for film crews. They're passed to attract new businesses, shore up threatened ones and keep prosperous industries happy.

Worst of all, "There is no process to systematically review or periodically re-evaluate tax expenditures," in the words of the executive summary of the most recent analysis.

It's a lobbyist's dream, a financial benefit with no expiration date, no review, no accountability.

In 2012 the executive summary noted that, "in all probability, many tax expenditure programs would not receive the same priority if they had to compete on equal footing during the biennial appropriations process."

So, perhaps it's time to put them on an equal footing.

For starters, the General Assembly should incorporate the tax expenditure analysis into its budgeting process.

And, each tax break should include a sunset provision so the legislature would be compelled to review the effectiveness before voting to keep it.

To do this, every tax break bill should include a clear statement of the purpose and how its effectiveness will be measured.

The taxes we don't collect should be given the same scrutiny as those we spend.


Average pay per job, 2013

Kentucky:$46,400

U.S.:$55,600

State job growth 2009-13, top sectors

Temp work: 23,000

Vehicle mfg.: 11,700

Public education: 11,400

Food service: 9,700

Health care: 4,900

Nursing homes: 4,300

Source: Kentucky Chamber of Commerce, Bureau of Labor Statistics

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