Estimated at 9.4 percent of income, Kentucky's state tax burden percentage is ranked 25th highest nationally. Yet Kentucky is the fifth-poorest state in the nation with an overall poverty ranking of 17.3 percent, based on the 2008 census.
An honest evaluation of Kentucky's current tax code must conclude that it is outdated and in need of a comprehensive overhaul. It is routinely described as "non-business friendly," therefore requiring large incentives of corporate tax exemptions, which places a disproportionate burden on Kentucky's small businesses and wage earners.
Given that Kentucky lost 82,200 jobs in 2009 and was expected to lose another 80,000 in 2010, our tax base is actually eroding and we must be creative in seeking both short and long term solutions to the problem. Wage earners, many earning $8 per hour or less, cannot be counted on as a future tax base.
The Galbraith/Riley tax plan seeks a reduction in many taxes, but no plan will defeat these problems or provide enough income if wasteful overspending continues to dominate Kentucky's state budget. A modernized tax code is only one step in solving the problems of the commonwealth, but an important one.
Tax rates are a primary consideration of businesses, both those seeking to locate here and current businesses considering whether to remain (thrive) here. States primarily compete with neighboring states in recruiting new business. A hodgepodge collection of ad-hoc tax incentives to attract individual businesses have resulted in inconsistencies in Kentucky's current model of economic development and have relieved large corporate entities of paying their fair share of the budget.
They have created an inequitable system prone to influence peddling, often forcing businesses to compete for favor. In addition, existing small businesses are overloaded with taxes, stifling growth and limiting employee hiring. The system is unfair and burdens Kentucky's bread and butter — small businesses.
The question before us then is: Who should bear that burden?
We must tighten our belts and implement an improved tax code based on equity. It must be modernized and simplified so that it is easily understood by everyone. It seeks to promote transparency and features pro-growth employment incentives, requiring a minimum amount of resources to comply. Loopholes should be closed as we seek to transition Kentucky toward the implementation of a flat tax.
Much of this can only be done if we finally implement a service tax in addition to our sales tax.
We believe an equitable tax on services could possibly eliminate the state income tax, reduce the tax on small businesses, and still provide the money needed to operate the state at an acceptable level.
There is a long list of folks we would like to ease the burden on, including seniors over age 65 who make less than $30,000 per year, homeowners and parents with children in college, to name a few. But we won't know precisely who and how until we get into office.
Then my administration will appoint a panel of experts to write the necessary language to get the job done. This will not be another commission to study the problem. The charge to this panel will be "get the job done."
Let me worry about the political fallout.
Gatewood Galbraith, a Lexington attorney, is an independent candidate for governor.