What’s the prize for winning race to the bottom? Kentucky should reset economic strategy.
Years ago I listened to a parable about effective leadership. It told of the Ranger team slogging through steaming jungle, slashing through wait-a-minute vines for hours. The leader ordered a man to climb a tree to determine how far it was to the objective. Back on the ground, the man reported, “Sir, we are making good time, but we are heading in the wrong direction.”
The lesson; it’s possible to lead effectively and yet fail to reach the objective. The lesson applies to our state leadership today.
Let’s look at the current use of offering tax incentives to lure potential employers. Current legislation before our state legislature, one to weaken Kentucky’s judicial system, and another that would allow Cabinet for Economic Development leaders to hide details of agreements, are attempts to increase the effectiveness of leadership in the wrong direction.
Gov. Martha Layne Collins was right when she championed the use of that carrot to attract Toyota to Scott County. However, time has passed, and the other states have used it to create a race to the bottom. In business terms, it doesn’t do Kentucky proud when our leaders sell to bottom feeding potential employers on price instead of value, competing in a commodity market where we are the cheapest; versus we are the best value.
There are other routes to take to reach the objective of adding jobs, since low tax rates are not the sole item on the wish lists of businesses when searching for a business-friendly place to nest.
Some other considerations are no less critical to the quality of life of the business’ employees, including the top-dog decision makers. Those factors influence the decision on whether or not Kentucky is a place where business leaders want to invest, work and live, compared to alternative states.
Therein lies the crux of heading in the wrong direction; tax revenue supports the quality of life measures, i.e., public health, environmental protection, education, transportation, public, workplace, school safety.
The objective is attracting jobs to Kentucky. As crazy as this may sound, a change of direction toward the objective, is to increase tax revenue to new levels that allow the state to provide the highest level of services in areas that define the quality of life.
The first step in the right direction is to simplify the tax system to increase tax revenue. Our leaders need to stop the current two-year budget ping-pong game of robbing Peter to pay Paul, determine a long-term approach that sets budget targets that lift Kentucky to somewhere in the middle of the pack, and then raise the bar through continuous efficiency improvements to be at the very top in the most crucial areas.
My suggestion is to tax everyone that has income above the poverty level, and every business; service provider, retail, or manufacturer at the profit line, no loopholes, no special interest treatments, no tax incentives for setting up shop in this state. Simplify, simplify, simplify.
It takes long-term vision and guts for our state politicians to address the tax structure. More important, the residents and the businesses of our state are going to be challenged to wake up and accept the fact that the current tax system spoils us.
I don’t know what the tax rate would be, but I’m sure it doesn’t have to be as high as the New England states or California where people pay more per month for school taxes than most Kentuckians pay in a year.
The message should be, “We are a leader in the important measures of quality of life, and if you choose to live and work in Kentucky, we expect you to contribute what it takes, just like everyone else.”
Our leaders establish a two-year budget in early 2020. It will tell us what direction they choose to lead us, and how we should vote in November.
Jim Brutsman lives in Cynthiana.
This story was originally published February 27, 2019 at 3:22 PM.