Kentucky Chamber urges tax commission to ensure competitiveness

Ensuring Kentucky’s competitiveness should be a key element of the work of a commission reviewing the state’s tax system, the Kentucky Chamber of Commerce said Tuesday.

“Kentucky has an opportunity, through the work of the governor’s Blue Ribbon Tax Commission, to take a close look at the realities of state taxes and spending and develop a system that will help ensure the long-term sustainability of important government programs while building taxpayers’ confidence in how their money is being spent,” the Chamber said in a statement sent to commission members and other policy leaders.

The Chamber urged the commission to keep several basic points in mind during its work:

  • Improving Kentucky’s competitiveness relative to other states is key to building an economy that will produce more tax revenue to fund needed programs.
  • State spending must be subject to a close review in light of the fact that spending priorities over the past few decades have shifted toward prisons, pensions and health care and away from investments in education and economic development.
  • The state should not overreact to the nation’s worst economic downturn in more than 75 years.
  • State spending has grown faster, on average, than the state’s economy over the past 20 years.

The economic growth necessary to produce more tax revenue cannot happen if Kentucky’s employers are put at a disadvantage through tax changes that hamper their ability to expand and create or retain jobs, the statement noted.

But slow state revenue growth in recent years has prompted some calls for higher taxes. “…One point that can get lost in these discussions is that the slowing revenue growth … has been the result of the worst economic downturn the nation has experienced since the Great Depression in the 1930s.” It is doubtful that any tax system could have fully protected Kentucky from the impact of such a recession, the Chamber added.

Citing its research on state spending that began in 2009 with the Leaky Bucket report and continued in 2011 with a follow-up report, the Chamber noted that unsustainable spending in several areas continues to pull money away from investments in education and economic development. Although progress has been made in slowing the spending increases, the growth rate in Medicaid, corrections and public employee health insurance spending continued to outpace that of the overall state budget through fiscal 2012.

“The bottom line: unless this spending is brought under control, it really doesn’t matter how much tax revenue is raised. The ‘leaks’ in the spending budget will ensure that no amount is enough,” the statement said.

The Chamber’s statement took note of two other items:

  • Local occupational taxes are putting Kentucky’s major metropolitan areas at a competitive disadvantage with their peer cities in the South. Compared to other states, Kentucky relies too heavily on income taxes at the state and local levels.
  • Kentucky ranks 30th in the nation in the amount of its residents’ personal income that goes to government spending, but Kentuckians earn less than the residents of 43 other states. State government has grown beyond the capacity of citizens and businesses to support it.

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