FRANKFORT — Gov. Steve Beshear announced Thursday night that he was creating a blue ribbon commission to study reforming the state's tax code to make it more equitable and make sure it spurs economic development.
Beshear, during a speech at the Kentucky Chamber of Commerce dinner at the Lexington Convention Center, said Lt. Gov. Jerry Abramson would chair the panel, which will recommend changes to the tax code by the end of the year.
The membership of the task force, which is still being determined, will include a wide cross-section of society and people from outside of Frankfort and state government, Beshear said. It's not clear how many members would be on the task force and whether it would include state legislators.
"I want a healthy and informed debate," he said. "We need the public at large to not only recognize the need for tax reform but also to buy in to any eventual solution."
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Beshear first indicated he wanted to look at tax reform during his December inauguration speech. However, he gave few details before Thursday night.
The group will hire an expert to look at other states' tax structures to determine what has worked. The group also will look at nine studies that have been conducted over the past 20 years on the state's tax structure, Beshear said.
The commission will have five goals — fairness, competitiveness, simplicity and compliance, elasticity and adequacy. The group will look at the tax burdens that different socioeconomic groups shoulder and examine those of businesses, too.
Any changes to the tax system must continue to allow Kentucky to attract jobs and investment, Beshear told the business group. A new tax system also must be easy to understand and provide adequate revenue to fund current services, Beshear said.
"Our tax system isn't doing that," he said.
Kentucky has cut more than $1.3 billion from its budget during the past four years as the state's revenue plummeted during the recession. Although revenue is returning to pre-recession levels, the state no longer has the $3 billion in federal stimulus money it had used to plug holes in its budget. The upcoming two-year budget might be the worst in recent years; Beshear has predicted cuts of 7 percent to 9 percent, the steepest in the past four years.
Those cuts are on top of previous years' cuts. Some agencies have seen their budgets slashed by more than 25 percent during the past several years. But even before the 2008 recession, the state spent more than it received in taxes and fees designated for the general fund. To balance the books, state leaders would reallocate money from other parts of state government.
House Speaker Greg Stumbo and House Minority Leader Jeff Hoover have expressed reservations about naming a task force to tackle tax reform. Many studies have been done over the years, and it's time to sit down and tackle the issue, Stumbo said after Beshear's State of the Commonwealth speech on Wednesday.
Hoover, a Republican from Jamestown, agreed: "Many of us believe that it's time to take action."
But the legislature's most ardent supporter of a tax overhaul said Thursday that tax reform was a topic that needed careful, deliberate study.
Rep. Jim Wayne, D-Louisville, who has been pushing for tax reform for more than a decade, noted the successful reform of the state's criminal code during the past legislative session. The legislature passed a bill that would put more criminals in treatment and rehabilitation rather than jail or prison. The measure passed because it was developed and vetted by a task force with key stakeholders on it — judges, prosecutors, defense lawyers and legislators, he said.
Using that method, "The proposal comes out with a lot more authority," Wayne said. "You have to have buy-in."
The state's dire finances might help Beshear's case for tax reform, Wayne said. It's likely that the upcoming two-year budget, which the legislature must pass by April, will have to cut key areas such as education. But there is an alternative to cutting teachers — reforming the state's tax system so it generates enough revenue to pay for critical services, he said.
Beshear said Thursday night that the commission would take months to develop a proposal because it would take that long to build a consensus.
And because the state's finances are finally rebounding from the recession, a quick proposal to overhaul the state's tax code could disrupt that recovery, he said.
There is also a political reason for delaying a vote on tax reform: All 100 seats in the House and half of the 38 in the Senate will be on the ballot in November.