A commission appointed to make recommendations to improve Kentucky’s tax code held its third meeting earlier this week in Frankfort. The Governor’s Blue Ribbon Commission on Tax Reform heard from two of its three recently named consultants, Dr. William Hoyt and Michael Childress of the University of Kentucky. Dr. William Fox, a University of Tennessee professor who previously consulted the state on tax reform in 2004, was not present.
Dr. Hoyt told the commission they would provide detailed data comparing Kentucky’s tax system to competing states and how different systems affect employment, location decisions, distribution (i.e. who pays what), and revenue stability. He said they would not determine whether a certain tax is “fair” or how the state should prioritize its spending.
Dr. Paul Coomes of the University of Louisville also testified, emphasizing that 42% of our economic output is concentrated in four counties (Jefferson, Fayette, Boone, and Kenton), three of which are along the Ohio River. He told the commission to be aware of tax changes that could further boost our border states, using the example of how alcohol tax changes in 2005 have caused a steep decline in beer sales in Kentucky.
Dr. Coomes said the state does a poor job of attracting talented workers and headquarters because of its high income taxes, and cautioned that raising taxes will not necessarily generate additional revenue – it could cause businesses and individuals to leave the state. He also said the state’s tax collection system is inefficient and recommended giving local jurisdictions more flexibility in raising revenue, including a local option sales tax.
Another academic, Robert Salyer of Northern Kentucky University, testified that the state should move away from the gross receipts tax because it results in tax pyramiding and is often buried in the sales price of a good.
As in the first two meetings, the commission received testimony from Greg Harkenrider, the state’s chief economist. He discussed some options for reforming tax expenditures, known to many as “loopholes.” He said adding a penny to the sales tax would generate $510 million in additional revenue, noted four expenditures on goods that would generate nearly $1.5 billion, and listed a slew of services that are taxed by other states. Harkenrider also said the state could broaden its income tax base by taxing pensions, capital gains transactions, disability income, and home mortgage interest.
The commission now heads across the state for meetings in each of the six congressional districts, beginning in Paducah on May 29. All meeting information is available on the commission website, which also provides a place for business owners and individuals to make public comments. We strongly encourage business owners to make your voice heard loud and clear to ensure any attempt at tax reform results in a more competitive business climate in Kentucky.