Any business person knows that when costs are rising faster than revenue, you should raise revenue and not just cut costs.
But year after year, Kentucky governors and legislators think they can slash spending, dole out more tax breaks and keeping putting off overhaul of a tax system that no longer grows with the economy. The math will never work.
Former Gov. Steve Beshear spent eight years cutting more than $1.5 billion in state spending. In 2012, he appointed the bi-partisan Blue Ribbon Commission to again study the often-studied need for tax reform. The commission recommended solutions that would have raised annual revenue by more than $650 million — solutions that have so far been ignored.
Gov. Matt Bevin last month proposed $650 million in additional spending cuts. He included modest increases for some areas hit hard by previous cuts. He also directed money to start fixing pension plans that are in crisis after years of under-funding by lawmakers. But overall, his budget was the latest variation of the same old strategy: rob Peter to pay Paul.
John Chilton, the new budget director, said last Thursday that Bevin wants his policy leaders to study tax reform options after this legislative session, but he didn’t elaborate except to say that “all different things will be considered.”
Earlier last week, a coalition of 20 education, labor and social-service groups, calling itself Kentucky Together, announced a new initiative to make the case for raising state revenues for much-needed investments in public education and social services.
Coalition partners include the citizens group Kentuckians for the Commonwealth, the Friedell Committee for Health System Transformation, Hazard Perry County Community Ministries, the state AFL-CIO, the Kentucky Education Association and the Kentucky Association of School Superintendents.
“We have seen what investments in education can do to help Kentucky succeed, and we know we can make those investments again,” said Tom Shelton, the association’s executive director and a former school superintendent in Lexington and Owensboro. “We’re part of Kentucky Together because we want our leadership to start making those choices to invest in our communities.”
We’re at the point where the cuts are affecting everyday life.
Kenny Colston, spokesman for Kentucky Together
Another partner is the Kentucky Center for Economic Policy, a non-partisan group that has produced some of the state’s most clear-headed policy analysis since the General Assembly abolished its own Kentucky Long-Term Policy Research Center in 2010 because it kept pointing out facts legislators didn’t want to hear.
“We’re at the point where the cuts are affecting everyday life,” said Kenny Colston, a coalition spokesman who works for KCEP. “This is the start of a public education campaign to say there are options, there are places we could go.”
The coalition’s website, Kentuckytogether.org, includes links to the Blue Ribbon Commission report, as well as tax-reform legislation proposed last year and a new KCEP report that clearly outlines the problem and proposes ways to raise tax revenue that would do more overall good than harm.
The report notes that since 2008 Kentucky ranks 10th worst among states for cuts to K-12 education, and that more than one-fourth of state funding for higher education has been cut, prompting huge tuition increases.
While Kentucky’s General Fund takes in $10.9 billion in tax revenue, it gives up $12.9 billion in tax breaks, the KCEP report notes.
The report also points out that Kentucky’s combined state and local tax burden hits middle-class residents the hardest, at 10.8 percent of family income. The tax burden is less as family income rises, with the richest 1 percent of Kentucky families having a state and local tax burden of 6 percent.
The report outlines a series of tax breaks that could be eliminated to generate hundreds of millions in revenue and make the tax burden more fair for poor and middle-income Kentuckians.
It also notes, as previous Kentucky tax studies have for years, that broadening the sales tax to services could have a big impact. The report also suggests closing some corporate tax loopholes, removing property tax caps and giving more scrutiny to tax breaks for businesses. And it said gasoline and cigarette taxes should be raised to levels comparable with the majority of other states.
Given the politics of this kind of change, Colston said he doesn’t expect the coalition’s efforts to achieve quick results. But it’s a start. And sanity must start somewhere, even when it involves Kentucky politics.