Since Gov. Matt Bevin is so pumped about vocational training to solve Kentucky’s ills, he might start by studying his own chosen line of work as it has played out in Kansas.
Last week, Kansas’ Republican legislature, rejecting Republican Gov. Sam Brownback’s four-year “experiment” in cutting taxes to spur growth, overrode his veto and raised taxes.
There are some lessons there for fellow Republican Bevin who said, also last week, he’ll call a special legislative session after Aug. 15 to overhaul Kentucky’s tax system.
Although details are few, Bevin has promised to cut taxes, tighten up loopholes and enjoy the show as Kentucky’s economy takes off.
That’s kind of what Brownback promised in Kansas. But the insurrection last week arose, Forbes magazine explained succinctly, from “four years of below-average growth, deepening budget deficits and steep spending reductions.”
Kansas, like Kentucky, must have a balanced budget. So when revenue tanks and the rainy-day fund is emptied the only option is cut, cut, cut. The cuts were so deep in Kansas that the state supreme court found the legislature had violated its constitutional obligation to adequately fund education and ordered an increase.
But there are some serious differences between Kansas and Kentucky.
In Kentucky, the budget director just predicted a $113-million shortfall this year and public pensions are only 16 percent funded, with a projected $18.1 billion shortfall. And Kentuckians have already lived through almost a decade of deep cuts that have resulted in higher tuition (including a new round of hikes also announced last week), fewer services and neglected infrastructure.
There is no margin for error in Kentucky.
Bevin has said, and we agree, that tax reform must produce more revenue. From the letter he sent legislators telling them about the upcoming special session, it appears he plans on recouping revenue lost to tax cuts through tightening up tax loopholes and exemptions. Here again, no argument. Currently Kentucky gives away more in hundreds of tax forgiveness programs than it actually collects.
But tightening loopholes is much easier said than done: the political reality is that every tax giveaway wound up in the code because a well-heeled someone wanted it there — and will likely fight to keep it.
As for exemptions, like tax breaks, they’re a great way to make political friends. Bevin, like so many before him, has been eager to give huge breaks to a host of businesses. He also restored the incentives for the Ark Encounter, a Noah’s Ark-themed tourist attraction in Grant County. The Herald-Leader’s Linda Blackford recently reported on the lackluster economic impact the giveaways have had there.
Not everyone got a tax break in Kansas. Although the wealthiest one percent saved about $24,600 a year on average, the Institute on Taxation and Economic Policy figured that the poorest fifth of the population paid about $200 a year more in taxes, thanks to fewer deductions and a sales-tax increase.
So, here’s the danger, the on-the-job lesson Bevin should study. Kentucky’s razor-thin budget does not have room for magical thinking, for ideological experiments. If he goes into this special session with solid plans for business tax cuts without an equally firm, mathematically solid commitment to make up the difference, and more, by cleaning up thousands of breaks and exemptions, Kentucky and its people will suffer.