Can Bevin turn the ‘sacred cows’ of Kentucky’s tax code into hamburger?
If there’s one issue in Kentucky politics that is almost universally agreed upon, it’s that Kentucky lawmakers must find more money to fund Kentucky’s ailing pension systems.
Where they begin to differ is how to find that money since almost all efforts to increase state revenue appear to fall flat in the legislature.
Expanded gambling? Can’t get out of the Senate. Legalizing Marijuana? Can’t get out of the House. Cutting tax loopholes? The easiest have already been chopped and there’s little appetite for tackling more. Comprehensive tax reform? The legislature’s last attempt was praised for being “revenue neutral.”
All of these ideas, though, are being touted on the campaign trail by Democrats who hope to be Kentucky’s next governor.
“We have got to look for new forms of revenue that do not raise anybody’s taxes,” Attorney General Andy Beshear told the Louisville Rotary Club at their gubernatorial candidate forum Thursday, before offering up legalized gambling and medicinal marijuana as potential funding sources for the pension systems.
Typically, it’s recreational marijuana that is considered a potential funding boon for governments, but none of the candidates support legalizing all pot. The latest medicinal marijuana legislation was purposefully designed to only raise enough money to support the medicinal marijuana program — the sponsors were adamant medicine shouldn’t be taxed. Beshear, though, has claimed taxing the drug could bring in as much as $50 million for the state.
Expanded gambling would be nice, Beshear’s opponents said, but it isn’t likely to win approval in the state’s Republican-dominated legislature.
“People talk about expanded gaming, we’ve tried that,” said House Minority Floor Leader Rocky Adkins, D-Sandy Hook. “The Republican legislature is not willing to look at that or pass it. So we need to look at realistic reforms that we can get bipartisan support on.”
Former Auditor Adam Edelen said Beshear shouldn’t be making promises just because it’s what people want to hear.
“Expanded gaming is a no-brainer, but we haven’t been able to get it done in Kentucky,” Edelen said. “And putting all our eggs in that basket seems to me to be an irresponsible gamble.”
Beshear disagreed, saying he would persuade lawmakers to approve expanded gaming — a promise invoked by his father, Steve Beshear, in his own gubernatorial bids — because he would tie it to the pension crisis.
“What they’ve never done is tie 100 percent of the proceeds of expanded gaming to our pension system,” Beshear said. “...if they know those dollars keep a promise to a teacher and a police officer and a firefighter and a social worker, they are supportive.”
His second choice for a funding stream is Adkins’ first choice: getting rid of tax loopholes.
Kentucky currently gives away more in revenue ($13 billion) than it collects in revenue ($11 billion). But much of that money is politically untouchable.
In 2017, Gov. Matt Bevin called on the legislature to take the “sacred cows” of Kentucky’s tax code and turn them into “hamburger.” That happened to some extent in 2018, when the legislature levied a sales tax on a variety of services, such as veterinary visits for small animals, admissions to events, and automobile repairs. Most of the new revenue, though, was used to make up for a decrease in the corporate income tax rate.
Adkins pledged to conduct a comprehensive study of Kentucky’s tax breaks — an idea lawmakers and governors have discussed for years without taking action.
“I think we ought to look at some of those exemptions to see if they’re still working, if they’re still effective,” Adkins said.
Beshear, too, pledged to examine two specific loopholes, one for corporate jets and one for houseboats. He said he would personally endorse legislation to make sure those products were fairly taxed. He also said corporations should not get tax breaks if they don’t pay a “living wage.”
Edelen, meanwhile, has proposed the most legislatively challenging way to raise revenue: comprehensive tax reform.
“I think we have to understand that expanding gaming is necessary, it’s the right thing to do,” Edelen said. “But it is not a panacea and it will not take the place of comprehensive modernization of our tax code.”
Bevin has long called for tax reform, hoping to get a tax code that looks more like Tennessee, where there is a high sales tax and no income tax. The Republican governor’s efforts have largely come up short.
Edelen and Adkins were critical of the legislature’s 2018 tax bill, saying it unfairly affected poor people.
“(Bevin) wants a system that rewards wealth over work,” Edelen said. “And the problem with a consumption tax is that it has a disproportionate impact on people who work for a living.”
Adkins, for his part, said comprehensive tax reform would have to be a bipartisan affair.
“The issue that we’ve got is to find a compromise in a Republican legislature that can pass through the process,” Adkins said. “What I’m trying to do is bring some proposals that might have a chance to pass.”
He wasn’t specific about what comprehensive tax reform would look like, instead saying he would bring together a panel of experts to propose something that would be bipartisan and could win support from the general public.
“It’s got to be fair, it’s got to be level,” Adkins said. “We can’t put more burden on the backs of working families.”