The problem is money.
Kentucky state government doesn’t have enough to right the pension underfunding wrongs of the past while meeting the most basic needs of the present.
In his budget address Tuesday night, Gov. Matt Bevin asked for suggestions on how to update the tax code to help pay Kentucky’s bills and invest in its future.
This is not a new problem. In fact, it’s something that public task forces, legislators and non-profits have been working on for years. So, here are some highlights from those efforts, ranging from the 2012 Blue Ribbon Commission on Tax Reform to a report on revenue options written last fall by the Kentucky Center for Economic Policy.
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They have come up with well-vetted suggestions to align tax policy so that revenues grow on pace with the economy (this isn’t happening now). They would also help fix an unbalanced system that has poor people paying more of their earnings in taxes than their wealthier neighbors.
▪ Shift from itemized deductions to standard deduction of $2,460 for everyone. This would have almost no impact on the great majority of taxpayers while simplifying filing. Estimated revenue gain: $367 million.
▪ Lift the lid on provider tax on hospitals. The legislature froze the tax to support Medicaid at $183 million, 2.5 percent of their 2005-06 revenues. Since then, although hospital revenues have increased by billions, largely as a result of the Medicaid expansion, their contributions have not increased. Estimated revenue: $99 million.
▪ Reduce the amount of retirement income excluded from tax. Social Security benefits are not taxed in Kentucky and the first $41,110 of pension income is also untaxed. Lower that exemption to $30,000 — $60,000 for a couple plus untaxed Social Security. Estimated revenue: $485 million.
▪ Expand sales tax to include services, particularly luxury services. Now, entry to Kentucky Kingdom is taxed but not country-club dues or greens fees. Other services that could be taxed include limousine rides, pet grooming, lawn and janitorial services. Estimated revenue: $115 million.
▪ Increase tobacco taxes. Improvements in public health are the best reason to raise Kentucky’s low taxes on cigarettes, e-cigarettes and other tobacco products. A $1 increase in the tax on a pack of cigarettes would prevent thousands of Kentuckians from becoming smokers. Estimated revenue: $266 million.
▪ Raise the top tax rate by half a percent for people earning over $100,000. The total state and local tax burden for the top one percent of earners is 6 percent while those who fall in the middle 20 to 60 percent of earners pay over 10 percent of their income in taxes. With the recent windfall from federal income tax cuts, high-earners would still keep more of their income even with this slight increase. Estimated revenue: $62 million.
These are just a few possibilities that could help Kentucky dig out of a deep budget hole and allow us to continue investing in our future.