FRANKFORT — The House budget committee received a draft Tuesday of Gov. Steve Beshear's proposed changes to the tax code, which would raise an estimated $210 million a year when fully implemented, but it's unknown whether lawmakers will vote on the plan.
"This document and this process is just to start the discussion," House budget Chairman Rick Rand, D-Bedford, said after a committee hearing on the plan. "The governor has said publicly and often that he's not going to force the House to vote on a bill that he doesn't have consensus built around in both chambers and both parties, and I think that's where we're at right now."
Later, House Speaker Greg Stumbo described the plan's chances in the legislature as "possible but daunting." Right now, lawmakers are prepared only to talk about it, said Stumbo, D-Prestonsburg. Tuesday was the 25th day of the 60-workday legislative session.
Lt. Gov. Jerry Abramson presented Beshear's 235-page plan to the committee. As announced last week, it would raise fresh revenue for the state general fund by making several changes, including expanding the 6 percent sales tax to selected services; increasing the tax on cigarettes from 60 cents to $1 a pack; and reducing tax breaks on pension income for people whose annual gross income is more than $80,000.
Those gains would be partially offset by reducing individual income tax rates and the top corporate income tax rate; altering the complex formula used by multi-state companies to calculate their income tax liability; establishing a state-level earned-income tax credit for low-wage workers; and awarding tax breaks to some of Kentucky's signature industries, including bourbon and horses.
Lawmakers peppered Abramson with questions, several of them expressing concerns about the proposal to tax more pension income for higher-income retirees.
The plan would reduce the retirement income exclusion for pensioners with an adjusted gross income above $80,000, and it would remove the exclusion for those with income of more than $100,000. Social Security benefits would not be taxed, Abramson said, and only 90,200 of the state's 1.8 million tax returns would be affected by the change.
The governor thought it appropriate to tax more retirement income because Kentucky has an aging population that continues to use government services, Abramson said.
Rep. Bob Damron, D-Nicholasville, asked how the state could tax software downloaded from the Internet, as Beshear suggests, when it already struggles to collect sales tax from online purchases. Abramson agreed that it's a concern, but he said Congress soon will give states the legal authority to pursue sales taxes from remote online retailers.
Rep. Jim Wayne, D-Louisville, questioned the plan's fairness, saying he favored an even larger earned-income tax credit for the working poor and opposed applying the sales tax to services such as auto repairs, which disproportionately would affect low-income families.
Wayne said the plan includes giveaways for businesses, including a simplification of corporate income taxes to exclude payroll and capital improvements that would cost the state more than $154 million in annual revenue.
"Nothing in here is in stone or in concrete," Abramson told Wayne.
Rep. Bob DeWeese, R-Louisville, said he thinks the legislature eventually will act on taxes.
"We have to face tax reform sooner or later, whether this be the vehicle or not," DeWeese said.