Ky.’s choice: Raise taxes or tax citizens with worse services, education
As the Herald-Leader’s ongoing series on tax expenditures shows, state government spends money two ways: by writing checks from the treasury, and by offering tax breaks to its chosen.
Sometimes that’s the chosen few, like movie producers or well-connected real estate developers. Sometimes it’s the chosen many, like homeowners who get the mortgage interest tax deduction.
When the state offers a subsidy in the form of a tax break, it’s really no different from levying a tax then writing a check. Either way, there’s less money in the treasury.
Just as the state has two ways of spending money, it has two ways of taxing people. Some taxes are obvious: six percent added to our shopping bills, income tax withheld on our pay stubs, and property tax bills that come once a year.
But the state can also tax us by cutting services in ways that disproportionately affect some people. For years, Kentucky has effectively taxed middleclass families and college students by cutting funding to state colleges and universities. Those schools must still find money to operate, so they raise tuition.
According to a report earlier this year by the Center on Budget and Policy Priorities in Washington, D.C., Kentucky has cut college funding by $2,832 per student since 2008.
While the whole state would benefit from a better-educated workforce, the legislature refuses to spread the cost of education over our population of 4.4 million people. Instead, Kentucky’s public colleges and universities were left to increase the average tuition bill by $2,684 during that time.
That amounts to a tax increase of more than $10,000 per student over a standard four-year education.
Now, Gov. Matt Bevin is doing it again. To pay for a pension shortfall caused by two decades of underfunding, he proposes to halt annual cost-of-living increases for current retirees and to slap a surcharge on state workers to pay for retirees’ health care.
Make no mistake about it. This is nothing more than a tax increase by another name.
The governor, in effect, wants to increase taxes on state employees by three percentage points so that he doesn’t have to seek a much smaller across-the-board tax increase.
A new three-percent tax is significant, since most Kentuckians pay about six percent in state income taxes. And, over five years a retiree who would have received a 1.5 percent annual cost-of-living adjustment would forego a pension increase of about 7.7 percent, a tax higher than Kentucky’s highest state income tax bracket.
Instead of sharing the cost of pension reform broadly, the full brunt of Bevin’s tax increase will be borne by state workers and retirees, from the janitors who make our public places shine, to the teachers helping our children succeed.
These public servants struck a bargain with taxpayers: they took state jobs that offered little in terms of glamor or opportunity to earn riches, and in return they were promised a modest pension that would sustain them in retirement. Now, if the governor has his way, that promise will be broken. Instead, our public servants will pay the “Bevin tax” every month in the form of smaller checks.
If our legislators are going to dig in on a “no new taxes” pledge, then they should also reject the “Bevin tax” on state employees and find another way to repair our underfunded pension system.
The reality is, for nearly a generation we have all reaped the rewards of artificially low taxes in comparison to the government services we received while our elected leaders failed to fund the retirement systems adequately.
Now that the bill is coming due and there is probably no solution that doesn’t involve some form of higher taxes.
Let’s reject the Bevin tax on schoolteachers and state employees and instead share the burden just as we’ve shared the benefit of lower taxes for two decades.
Jay Prather is a Lexington lawyer.
This story was originally published November 2, 2017 at 6:14 PM with the headline "Ky.’s choice: Raise taxes or tax citizens with worse services, education."