First some good news: Teachers were heard.
Lawmakers knew that fired-up educators and pro-education Kentuckians, who filled the Capitol for weeks, were watching.
That’s a big reason the Republicans who control the General Assembly abandoned some of Republican Gov. Matt Bevin’s and their own worst ideas for cutting public pensions and public spending.
Instead, lawmakers chose — of all things — to raise taxes. Many had to break the pledge that they had signed to oppose all tax increases. They responded to the needs and demands of Kentuckians rather than answer to distant anti-government puppet masters. That’s refreshing and encouraging.
Unfortunately (bad news starts here), rather than investing in educating Kentuckians and building 21st century infrastructure, Republican lawmakers gave away a big chunk of that new tax revenue in the form of tax cuts that will most benefit affluent individuals.
Nursing home aides, restaurant workers and students will pay more to keep their cars running, while corporations get an $80 million break. Smokers, who are generally low-income, will pay $133 million more for cigarettes made of tobacco (but still no tax on electronic cigarettes). Everyone who pays personal income tax will get a break, but those with the highest incomes will get the biggest windfalls, which will worsen economic inequality. The changes shift tax burden from those who can most afford to pay to those who can least afford it.
Questions of fairness aside, one big problem with this shift from income taxes to sales taxes is that it won’t meet Kentucky’s long-term revenue needs by growing with the economy. This is especially true of the 50 cent tax increase on cigarettes, which will decline as fewer people smoke or switch to untaxed ecigs.
As Jason Bailey of the Kentucky Center for Economic Policy writes, “In an economy where most income growth is at the top and where corporations are experiencing record profits, a tax system that taxes them less while taxing low- and middle-income people more will result in slower revenue growth,”
Republicans, who proudly say that once their tax plan becomes law Kentucky will be among the 10 states with the lowest income taxes, are devoted to the notion that low income taxes trigger economic growth. Time will tell.
More likely, though, new budget crises are in Kentucky’s future — at which point lawmakers will have to take their pencils to the tax exemptions and economic incentives that drain billions from state coffers and that went largely unexamined in this session.
Meanwhile, despite almost $250 million a year in net new revenue, Kentucky will still underfund education, even though it would have been worse under Bevin’s budget or the budget passed by the Senate.
A decade-long disinvestment in higher education will continue. Kentucky has cut almost a quarter-billion dollars in state support for higher ed since 2008.
On the up side, the state will continue to fund transportation and school employee health insurance at close to current levels. Bevin had proposed shifting much of the cost of running school buses onto local districts.
But the budget makes many cuts in education, including preschool, textbooks and instructional resources, family resource and youth service centers, extended school services, teacher professional development.
Lawmakers did the most important thing they could to solve the underfunding of public pensions: They fully funded public pensions. Rebuilding the once healthy pension funds will take decades, but the only way to do it is one year at a time.
Bevin, meanwhile, sniped from the sidelines at Republicans who stuck out their necks to support more revenue and a Republican vision of tax reform.
The governor once implored lawmakers to boldly reform the tax system to raise new revenue, leaving no “sacred cow” tax break unexamined. Then in January, he proposed a budget so devastating to Kentucky that it all but demanded tax increases.
On Monday night, as lawmakers scrambled to finish in time to have room to override vetoes in April, Bevin issued a vague statement questioning whether his fellow Republicans were being “fiscally responsible.”