Changes in sales tax, economic incentives, and more expected to be on the table in tax reform discussions

ashli ketAs talk of a special session on tax reform later this year continues to buzz around Frankfort, the voice of the business community was heard on KET in a discussion on what to expect from reforms on Monday night.

Legislators featured on the KET Kentucky Tonight program, moderated by Renee Shaw, agreed that comprehensive tax reform must occur in order to move the state forward.

House Appropriations and Revenue Committee Chairman Steven Rudy said he believes the tax code needs to be updated to reflect the more service-based economy in which Kentucky finds itself and added that reforms should be made before a budget is crafted in order for legislators to know what type of revenue with which they are dealing. The General Assembly will have to craft the next two-year state budget in 2018.

State Sen. Reginald Thomas, a Democrat from Lexington, applauded Gov. Matt Bevin’s willingness to address tax reform and said he believes that any tax reform efforts cannot be revenue neutral due to the dire budgetary situation the state continues to find itself.

Kentucky Chamber of Commerce Vice President of Public Affairs Ashli Watts said the business community is very interested in addressing tax reform and that employers in Kentucky would like to see the reforms focus on making Kentucky more competitive.

Watts also said that the pro-growth policies passed by the legislature in the 2017 session including right-to-work, repeal of the prevailing wage, and others are already attracting business to Kentucky which will broaden the tax base. Because of this, Watts noted the business community’s focus on tax reform continuing that progress and making Kentucky more attractive to companies looking to move to Kentucky.

“The overwhelming majority of our members do want to move toward a consumption-based tax system. So this would possibly mean raising the sales tax and lowering the income tax,” Watts said.

As cutting back on economic incentives to attract business continue to be a key focus of tax reform discussions, panelists disagreed on the exact role those incentives should play. But Watts pointed to the bipartisan support on the last night of the 2017 session for a $15 million package which brought the $1.3 billion investment of Braidy Industries to eastern Kentucky which is expected to provide 500 jobs with an average salary of $75,000 per year. Many of the panelists said there is likely a place for these type of initiatives but they should continue to be reviewed over the years.

(Gov. Matt Bevin discussed many of these issues with The Bottom Line in an exclusive interview in January. Watch that interview here.)

With most groups and parties agreeing that a tax plan needs to bring in more revenue in order to address many of Kentucky’s financial issues, especially the state’s pension crisis, Watts noted the Kentucky Chamber’s position that in addition to raising revenue, the state must also find ways to cut spending.

Rep. Rudy stated that it will likely be a hard sell for Republican members of the legislature to bring in additional revenue, but it will all depend on what the package presented and legislators will need to look at the results of audits being done on the state’s pension systems to see how deep the hole really is.

Watch the full KET Kentucky Tonight segment on tax reform here.

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