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Tax measure going to House

FRANKFORT — The plan to plug a $456 million budget shortfall with a patchwork of tax increases, spending cuts and fund transfers will come before the state House Wednesday, where it's attracting criticism from the political left and right.

The tax measure — which would generate $52.2 million this fiscal year by doubling cigarette and tobacco taxes and applying the 6 percent sales tax on packaged liquor, wine and beer — escaped the House budget committee by a 19-9 vote.

"I did not come here to create a situation to force elderly from nursing homes or condemn children to an inferior education," said Rep. Charlie Siler, R-Corbin, one of three Republicans to vote for the tax bill.

Still, legislative leaders are bracing for a close vote Wednesday when the bill goes before the 100-member House.

Any revenue measure during an odd-year General Assembly needs 60 votes to pass. It remains unclear whether Democrats have enough votes among their 65 members.

"We'll see tomorrow," said House Speaker Greg Stumbo, D-Prestonsburg.

Republicans, meanwhile, might provide as few as six votes for the bill.

"There will be some," said Rep. David Floyd, R-Bardstown and the House GOP whip. Floyd, however, won't be among them.

To cover the shortfall for this fiscal year, which ends June 30, the committee approved taking up to $219 million from the state's rainy day fund and moving $75 million from a variety of other state funds. An additional $52.2 million would come from the tax increases.

Gov. Steve Beshear would be left to cut spending by $147 million, which he proposed in December. At the time, Beshear implemented a 4 percent cut in most state agencies, excluding Medicaid, the corrections department and the main funding formula for primary and secondary schools. Higher education will be cut 2 percent.

Unlike Beshear's initial plan, the legislation doesn't call for furloughs of state workers and doesn't take $17.6 million in coal severance tax money away from coal-producing counties.

The centerpiece of the plan, which was hashed out by Senate and House leaders over the last week, remains the combination of cigarette and alcohol taxes. About $42.1 million would come from doubling the 30-cent levy per pack of cigarettes to 60 cents and increasing taxes on snuff and chewing tobacco twofold.

In a full year, the cigarette tax is expected to produce $81.5 million for the state, compared with $97.9 million from the alcohol tax.

Applying the 6 percent sales tax to alcohol products would bring in $10.1 million this fiscal year once it goes into effect in May and June. Packaged alcohol is currently taxed on the wholesale level and not at the cash register.

The alcohol industry has mobilized a large public relations campaign in the last week and made a last-minute plea to lawmakers in the committee Tuesday.

"This would be a self-inflicted trickle down disaster," said Bill Samuels Jr., president and CEO of Maker's Mark.

Samuels argued that adding another tax to one of Kentucky's "signature industries" would send the wrong message to other states, which could follow suit.

Rep. Harry Moberly, D-Richmond, rebutted the industry's arguments, saying consumers aren't likely to change their spending habits because a sales tax will be applied. They're used to paying that sales tax on nearly everything else — including other beverages such as soda and bottled water, he said.

"I would be surprised if one person failed to buy a fifth of Makers Mark or a pack of beer because it has a sales tax," he said.

Still, it was clear a political vise has been tightening on the legislation.

On the left, some Jefferson County lawmakers who normally can be counted on to support tax increases to avoid cuts have complained that the proposal doesn't go far enough and is a "missed opportunity."

"This is not the right approach," said Rep. Jim Wayne, D-Louisville, and one of the most outspoken advocates for more sweeping tax reforms.

Conservatives, such as Reps. Stan Lee, R-Lexington, and Jim DeCesare, R-Bowling Green, have argued that raising taxes is the wrong move during tough economic times and that a combination of spending restraint and a tax system overhaul is needed.

Most lawmakers, regardless of whether they plan to vote "Yea" or "Nay" on Wednesday, bemoaned the fact that the bill is a temporary fix.

"I'm starting to get worried about what's going to happen on July 1," which is the first day of fiscal year 2010, said Rep. Bill Farmer, R-Lexington, who plans to vote no. "All this does is get us through June 30. And it doesn't do a good job at that."

Farmer has filed a bill that would eliminate Kentucky's income tax and extend the sales tax to services.

Most Lexington-area Democrats say they will vote for the alcohol and cigarette tax bill Wednesday, but begrudgingly.

"I'm inclined to support it," said Rep. Susan Westrom, D-Lexington. But she quickly added that it's "inexcusable" to not use the economic downturn as impetus to restructure the tax system.

"I think we have to be bold and address as many things as we possibly can, to be creative and make up for the years that we didn't have the guts to deal with this issue appropriately," she said.

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