Sunset tax breaks to get money’s worth
Last month, Gov. Matt Bevin presented a spending plan for the next biennium based on just over $10 billion in general fund tax revenue in each of the coming two years.
Legislators are debating what should be in the budget and hearing hours of public testimony — from universities, school districts, the courts and a host of others making the case that the public’s investment in them is well spent.
What hasn’t happened, and never does, is a similar public vetting of the taxes the state waives through a host of tax breaks and exemptions — a whopping $12 billion annually.
Even though Kentucky spends more on tax breaks than it collects in revenue, there is no regular process to consider whether that enormous investment is well spent. There are no committee hearings where those receiving them try to make the case that the tax breaks are still a good investment for the taxpayers who subsidize them.
We’ve long advocated for sunset provisions on tax giveaways: they would expire unless the General Assembly votes to reauthorize them after going through the same process used to decide what makes it into the budget.
The need for this oversight became even more evident last week as the Herald-Leader’s Linda Blackford and John Cheves reported on an exemption aimed at preserving farmland that’s also providing millions in tax breaks for real-estate developers and wealthy people whose homes sit on large lots. State government estimated it will give up about $98 million in revenue over two years thanks to this break.
Some of that tax forgiveness is true to the intent of the 1969 law aimed at helping farm families hold onto their acreage in the face of rapid development. But most county property valuation administrators automatically give the exemption to any lot that’s more than 10 acres and isn’t in commercial use. That includes large residential estates that get the break forever, and thousands of acres zoned and marketed for shopping centers, subdivisions or other development that enjoy lower taxes until they are actually put into service.
No one really knows how much of that $98 million is helping farmers, because no one has asked.
But the agriculture exemption is really small potatoes in the tax-break world.
Consider another likely well-intended break that costs the state, and by extension we taxpayers, much more: income-tax forgiveness on pensions.
It’s reasonable to give people who have worked hard, contributed to the economy and society a break so they won’t face poverty in their golden years. But in Kentucky the first $82,220 of pension income for a couple is not taxed, nor are their Social Security benefits.
The most recent tax-reform commission figured that narrowing that exemption to the first $30,000 in pension benefits, $60,000 for a couple, would add $485 million annually to state coffers. That would have no impact on poor or lower middle-class retirees but would assure those with comfortable retirement incomes pay a reasonable share in taxes, although still less than people in the workforce.
And then there are the millions forgiven in taxes on goods and services where it’s hard to understand what broad public good was ever contemplated.
Things like jet fuel, maritime supplies and vessels, semi-trailers and locomotives get breaks; services like renting or leasing autos and limousines, cable and satellite TV, health clubs, dry cleaning, pet grooming, private-club memberships aren’t subject to sales tax.
This shadowy anti-budgeting sucks hundreds of millions from the state treasury annually. That money could be used to pay down the state pension deficit, provide quality preschool and stem the cuts at all levels of public education.
Bevin and the General Assembly must show some respect for Kentuckians who do pay taxes by treating tax breaks like the spending they really are.
This story was originally published February 27, 2016 at 10:24 AM with the headline "Sunset tax breaks to get money’s worth."