Mishmash of tax breaks unfair, shrinks Ky. budget

Dozens of houseboats docked at Lee’s Ford Resort Marina in Nancy on Oct. 31. The state property tax rate on houseboats is 1.5 cents per $100 value, while the rate on small boats is 45 cents per $100.
Dozens of houseboats docked at Lee’s Ford Resort Marina in Nancy on Oct. 31. The state property tax rate on houseboats is 1.5 cents per $100 value, while the rate on small boats is 45 cents per $100. aslitz@herald-leader.com

“Something don’t seem fair.”

That’s what Mark Lunsford told reporter Bill Estep when he learned the property tax rate on his 21-foot bass boat is 30 times that levied on luxury houseboats that can cost upwards of $250,000.

And it’s what’s been clear in recent weeks as the Herald-Leader’s series of articles on Kentucky’s irrational mishmash of a tax code that gives away more money each year than it collects.

Is it fair that:

▪  A couple’s wedding rings are subject to sales tax but not the manicures for the hands they will adorn?

▪  A coffin is taxed but not the gravestone that will mark its place?

▪  Suburban developers get millions in tax breaks intended to revitalize blighted urban areas?

▪  Kentucky agrees each month to give filmmakers over $5 million of taxpayers’ money?

All of these questions can be rolled into one: Is it fair that most people and businesses pay their full share of taxes to support our state while some don’t?

No, of course not. And the large and growing tax breaks — they don’t sunset so with each new one the drain on the treasury grows — are bankrupting the state.

And yet, despite Gov. Matt Bevin’s warnings about Kentucky’s dire financial straits, his pledge to take on these tax loophole “sacred cows” with the majorities his Republican Party has in both houses of the General Assembly, we’ve yet to see a proposal to eliminate, or even seriously review, these giveaways.

In a few weeks, the General Assembly will meet in regular session to write a budget for the next two years in the face of revenue shortfalls and a depleted rainy-day fund.

Voters must tell Bevin and their representatives that Kentucky can’t keep giving breaks for a few that sap the state’s ability to invest in education, infrastructure and other critical services.

It is politically risky to vote for anything that can be construed as a tax hike. But legislators must trust that their constituents can understand that taking away tax breaks, or extending sales taxes to services is both fair and necessary.

The loopholes are in our tax code because some interest lobbied successfully to put them there. They will return to argue the worthiness of their favorite giveaways.

Marina operators will tell legislators again, as they did in 1998, how luxury houseboat owners will take their floating palaces to other states if they’re taxed the same as fishing boats. Funeral directors will plead, as they did in 1976, the case of the grieving family hit by yet another cost if monuments are taxed. Lobbyists for developers will tout the economic benefits of the malls we’ve subsidized, as they did in 2013 to get a $24 million tax rebate for The Summit at Fritz Farm.

Legislators must sharpen their pencils, their wits and their commitment to the people of Kentucky to sort through which tax breaks add value and which don’t.

Although it’s unthinkable to spend $90 million with no idea what it bought, that’s exactly what Don Parkinson, secretary of the Tourism, Arts and Heritage Cabinet, admitted about the film subsidies. “I can’t give you an economic impact study. We just don’t have that,” he told reporter John Cheves. Really?

The political task is enormous, but the stakes are high. Taxpaying Kentuckians have paid the price for a decade of deep state budget cuts due to faltering revenues thanks, in part, to the $13 billion lost annually in tax loopholes.

Some Kentuckians suffer financially, like the higher tuition borne by college students and their families. Others are hurt when there are fewer social workers to protect vulnerable children, or state troopers’ cruisers break down.

It’s just not fair.

The General Assembly must take on loopholes this session. In the future, any tax break legislation touted as spurring economic development must require regular reports on the actual impact.

And tax breaks shouldn’t be forever. After some period — say 10 years — they should expire and the General Assembly must assess their value before reauthorizing them.