Tax overhaul plan adds revenue, fairness

Kentuckians who want our state to advance from the bottom of national rankings have been calling for tax reform for years and looking for signs that the state was ready to take that important first step toward progress.

We saw a hopeful sign in Gov. Steve Beshear's inaugural address as he acknowledged that the foundation of a better tomorrow requires "the restructuring of our tax system to make it more fair and efficient to meet the needs of the people."

It is against this backdrop — and with budgetary storm clouds gathering for 2012 and beyond — that I prefiled tax-reform legislation on Dec. 15 that would provide our state with a more fair tax system with the stability to support progress in Kentucky.

Our current tax system isn't meeting the needs of our people. It isn't fair. It isn't efficient. Our financial situation is getting worse. Our revenues continue to decline. We've already cut $1.3 billion in recent years, and more cuts are coming. When lawmakers meet in January for the 2012 legislative session, we'll no longer have the federal stimulus Band-aids to cover our budget holes.

The programs and services that Kentuckians depend on need more money than they're getting. The Department of Education recently reported that $3.7 billion is required to repair 500 schools to meet state standards. Of those schools, 76 are in Jefferson County. Two of the worst, Blue Lick Elementary and Southern High School, are in my district.

Because of recent attention on management of child abuse and neglect cases, we have seen that the Cabinet for Health and Family Services needs more money to increase staff and training.

There has been a 27 percent decline in budget allocations for environmental oversight.

The list goes on.

We can no longer ignore the reality in front of our faces. No short-term solution will solve our problem. We need long-term reform of our tax system.

We haven't seen meaningful change in Kentucky's income taxes since the 1950s. The tax burden is increasingly falling disproportionately on the middle class and working poor. Kentucky's wealthiest citizens pay only 6.1 percent of their income in state and local taxes. Meanwhile, those who earn between $15,000 and $47,000 pay nearly 11 percent of their income. Those earning between $47,000 and $77,000 pay almost 10 percent. There's something wrong with this.

I am proposing a state earned income tax credit that would lower taxes on more than 360,000 Kentucky families. The federal EITC is supported on both sides of the aisle. Half of the nation's states have already implemented their own EITC. If Kentucky joined them, working families earning up to about $41,000 would be eligible for the credit, with nearly $700 going to families working just above the minimum wage with two or more children. That is money that would be pumped back into our local economies to create more jobs.

My proposal, Budget Resolution 373, also helps balance the tax disparity between the wealthy and the poor by moderately raising taxes on the top 20 percent of earners.

While they still would not be paying their fair share, an increase of just .04 percent, or less than $650 a year on those making above $133,000, would provide up to $200 million more in revenue for our state annually.

We should also restore our estate-tax law. Estimates show we've been losing about $22 million a year after the federal estate tax phased out. We never chose to lose this revenue; we simply failed to act to preserve it. Now is the time to restore the tax on estates valued at more than $1 million. This would affect fewer than 350 of the wealthiest estates each year.

The sales-tax discrepancy also needs to be remedied. In an attempt to add a bit more fairness to our tax laws, my reform measure proposes a 6 percent sales tax on services such as limousine rides, country club dues, golf course fees and chartered air flights originating in Kentucky. These services are used primarily by the wealthiest Kentuckians who aren't paying their fair share. It also addresses the need to tax the growing area of the economy: services.

If this legislation doesn't sound radical or extreme to you, that's because it isn't. My proposal offers relatively minor adjustments to a complicated tax code to ensure increased fairness, adequacy and sustainability. My hope is that 2012 is the year fellow legislators find the political will — as our governor encouraged — to make needed tax-system corrections.

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