Sept. 26, 2012 — Three taxation experts looked into the future last week in Frankfort and predicted that Kentucky state government could face a revenue shortage of a billion dollars by 2020.
Recent shortfalls of tens of millions of dollars will multiply a hundredfold unless the state broadens its tax base, according to the team of economic consultants – two from UK and one from the University of Tennessee.
They told Gov. Steve Beshear’s blue ribbon tax commission that state revenue cannot keep pace with future economic growth and that changes are needed to make Kentucky more competitive with other states in attracting and keeping employers.
The experts gave the commission a list of options to consider, including some political bombshells such as putting the state sales tax back on groceries, exempt since 1972.
But they also said that tax relief must be included to avoid too much negative impact on poor folks who spend a larger portion of their income on food, for example.
Other hot button suggestions include applying the sales tax to some services, reducing the tax break now given pensioners and replacing some corporation taxes with a new tax on gross receipts.
Cities and counties could benefit from the option of imposing a local sales tax in return for a reduction in local income taxes, often called payroll taxes.
Tennessee, which has no state income tax, has the nation’s highest combined state and local sales tax rates at an average of 9.45 percent.
The state sales tax is 7 percent and the average local sales tax is 2.45 percent.
Tennessee has local option so that city and county voters must approve local sales taxes, in the same fashion as alcohol sales.
We believe strongly that voters should have such rights, particularly as it applies to taxation.
The tax experts said the commission, which reports to the governor in November, should “shift taxation away from business capital and labor earnings and toward consumption.”
By the way, the current study on tax reform is the 11th in Kentucky in the last 20 years or so.
The first 10 reports are sitting on shelves somewhere in Frankfort or in the limestone caverns where the state keeps its old records.
By now it should be obvious that Kentucky either modernizes its state and local tax codes or finds itself, along with state and local governments, being unable to provide basic services for their citizens.
By the calendar, 2020 is just eight years away and the clock is ticking.