House Republicans’ courageous vote should move Kentucky toward real tax reform

Rep. Steven Rudy, R-Paducah, sponsored the budget and tax bill that was approved Thursday by the Kentucky House. “This is a stopgap,” Rudy said, pledging that comprehensive tax reform would follow.
Rep. Steven Rudy, R-Paducah, sponsored the budget and tax bill that was approved Thursday by the Kentucky House. “This is a stopgap,” Rudy said, pledging that comprehensive tax reform would follow.

To protect education from savage cuts, Republicans in the Kentucky House voted to raise taxes by about $250 million a year.

The House majority’s courage — to break with party orthodoxy despite pressure from many sources — is reassuring. At a time when distant monied interests often call the shots in the Capitol, lawmakers responded to genuine Kentucky needs and voices.

We disagree with some of the particulars — more about that below — but Kentuckians should applaud the spirit behind this action, especially if lawmakers follow through on House budget committee chairman Steven Rudy’s vow to pursue comprehensive tax reform.

Even with just 18 days left in this session, the long-elusive goal may no longer be such a long-shot: Across the political spectrum, there is agreement that Kentucky must broaden its tax base and modernize the tax code so that revenue grows with the economy.

Also, there is recognition that the spending and tax plans approved by the House, though better than Republican Gov. Matt Bevin’s recommendations, still fall short of Kentucky’s needs. As Rudy, R-Paducah, told his colleagues, “I have no illusions that this is a long-term fix to the systemic problems of the commonwealth.”

As Rudy also said, the House votes move the budget and tax plan to the Senate and, ultimately, into a House-Senate conference committee.

Senate President Robert Stivers quickly seized on one of the shortcomings in the House’s new 25-cent tax on each dose of prescription opioids and 50-cent increase in the tax on a pack of cigarettes: If the changes work as intended, by reducing smoking and the use of addictive painkillers, the revenue will shrink.

Stivers didn’t say this, but even more disappointing, the 50-cent cigarette tax increase is too small to reduce smoking or the exorbitant costs that smoking inflicts on public and private sectors in Kentucky.

Rudy said the House wants to reduce smoking without hurting retailers’ sales of cigarettes to people from other states, goals that are at cross purposes. Experience shows that the tobacco industry and retailers would use discounts to blunt the effects of a 50-cent increase. Kentucky must increase the cigarette tax by at least $1 to improve public health. Young people are especially sensitive to price; a $1 increase would save thousands of lives.

By bowing to retailers, the House plan voids the health-care savings and puts a new tax burden on Kentucky’s poor, who make up the majority of smokers.

Asking low-income smokers to shoulder the cost of education and public-employee pensions — while asking nothing of more affluent Kentuckians or the business community — is unjust and, because of the diminishing returns, bad tax policy.

The House budget also grabs $480.6 million from public employees’ health insurance fund. In fairness, any surplus after paying claims should be returned to workers via reduced premiums, especially since state employees have had no raises for eight of the last 10 years.

By tapping new revenue and shifting existing funds, the House was able to protect higher education from the 6.25 percent cut proposed by Bevin. The House provides $202 million more in 2019 than Bevin would to the school funding formula, reversing the governor’s deep cuts in school transportation.

Even with the House effort, per-student spending in the basic funding formula would be 13 percent lower than in 2008 when adjusted for inflation. Other education spending, including textbooks and teacher professional development, would be zeroed out. And most of the rest of state government would be cut by 6.25 percent.

Like Bevin, the House funds public pensions at the required level, $4.8 billion over the next two years.

Fifty-five of the House’s 62 Republicans and 13 of the 37 Democrats voted in favor of the tax increases.

Notably, both Republican Stivers in the Senate and some Democrats in the House voiced similar complaints: If lawmakers are taking a rare vote to raise taxes, let it not be on piecemeal changes but on a comprehensive overhaul that will position Kentucky for the future. The legislature should get on with doing just that, including a $1 cigarette tax increase.