Tax reform commission holds second meeting

A commission appointed to make recommendations to improve Kentucky’s tax code held its second meeting yesterday in Frankfort. The Governor’s Blue Ribbon Commission on Tax Reform again heard testimony from Kentucky’s chief economist, Greg Harkenrider, who provided highlights of prior tax reform efforts and information on various state taxes.

Harkenrider lauded the work of past initiatives, particularly the 1995 report “A Blueprint for Comprehensive Reform,” but noted that few resulted in substantive changes to the tax code. He also cautioned that no silver bullet exists to perfect the code, as any change will likely lower taxes for some while increasing taxes for others. He explained that tax reform rarely satisfies all constituencies.

Harkenrider also presented historical information on the income, sales, property and cigarette taxes, and how he thought certain changes would affect each of them. For example, he said raising the top marginal income tax rate would produce additional fairness and adequacy but would create an additional competitive disadvantage for our state. Importantly, Harkenrider recognized that local income taxes, when added to state income taxes, make a huge difference in attracting headquarters and top business leaders. He also noted that while income taxes are a barrier to business, property taxes in Kentucky are generally lower than other states.

The commission discussed the state’s tax expenditure report, which includes exemptions, exclusions, or deductions from the base of a tax, a credit or deferral of a tax, or a preferential tax rate. To increase revenue and simplify the code, some members suggested that many of these so-called “loopholes” should be closed. Lt. Gov. Jerry Abramson, who is chairing the commission, said that tax expenditures should be closely scrutinized and would be given greater attention at a later date.

The commission next meets on May 8, when the consultant who will provide technical advice will be revealed. The commission will then hold meetings around the state in each congressional district. All meeting information is available on the commission website, which also provides a place for business owners and individuals to make public comments.