Policymakers and tax experts discuss impact of recent reforms and what comes next at State and Federal Tax Summit
Federal Tax Reform
Kentucky Congressman Andy Barr kicked off the Kentucky Chamber’s State and Federal Tax Reform Summit on Monday morning with an opening keynote address on the results of federal tax reform, which he said is boosting economic growth at faster rates than were even predicted when the reforms were passed.
Barr stated because of federal tax reform, business investment has seen a growth of 6.8% in the first quarter of 2018, 40,000 more jobs have been created each month than before the changes, and unemployment rates are at the lowest level since the 1960s.
The positive impact on business, Barr said, is also evident as he cited figures from reports showing the majority of small business owners feel the new tax laws will have a positive effect on their business as well as the economy and manufacturers reporting a positive outlook with 86% of national association members indicating they plan to increase investment in states due to tax reform and more than 70% plan to increase hiring and wages.
Barr also stated workers across the country have already seen a boost in their paycheck due to lower federal tax liability.
But federal tax reform is not complete, Barr said. The Kentucky Congressman said Congress is “just getting started” with tax reform efforts and encouraged business leaders in the audience to get involved and tell their representatives what they can do to improve the federal tax code.
Jen Shah and Erica Horn of Dean Dorton Allen gave an overview of the new reforms at the state and federal level and what they mean for businesses, individuals and more. The tax services professionals told the crowd many answers to tax questions currently facing businesses and individuals are explained on a new site, taxanswers.ky.gov, from the Kentucky Department of Revenue.
In a talk detailing how federal tax reform is shaping business, U.S. Chamber Vice President of Legislative Strategy and Chief Tax Lobbyist Ashley Wilson said it is impressive we are seeing significant federal tax reform for the first time in more than 30 years and pointed to many Kentucky businesses the U.S. Chamber has communicated with including Brown-Forman, Humana, and others that have used the money saved through federal tax reform to boost employee wages and benefits.
Wilson said the new federal tax changes encourage the growth of businesses and benefit workers, and she added there is more work to be done on tax reform in Washington including technical fixes and implementation and noted tax reform will be a major issue in the 2018 midterm elections which will continue the conversation.
Other panels discussed the direct impact of tax reform policies on businesses of various sizes. During those discussions, experts stated they expect to see more changes coming as state and federal officials monitor the impact of the reforms on corporations and other areas.
State Tax Reform
In the afternoon keynote address, Tax Foundation State Policy Analyst Morgan Scarboro discussed the reforms recently passed in Kentucky and what still needs to be done to make the state more competitive.
Scarboro said before tax reforms passed in 2018 Kentucky was uncompetitive, ranking 33rd on the Tax Foundation’s scale of state tax codes and said the Commonwealth has been surrounded by competitive states and was operating with a tax code that discouraged investment.
After the reforms, Kentucky has moved to rank 18th according to the Tax Foundation with changes including implementing flat rates for the individual and corporate income taxes, phasing out the inventory tax, and expanding sales tax to some services.
However, Scarboro said Kentucky still has work to do on a regional and national scale to make the state more competitive.
Among the ways Kentucky could improve is continuing to expand the sales tax base to services as she said Kentucky is only applying the sales tax to 38% of the economy, which is not sustainable. She also mentioned eliminating the inheritance tax, taking a close look at exemptions in tax code and finding a way to phase out many that are no longer needed, and more.
On sales tax, Kentucky is in the middle of the pack of states. Scarboro explained that to really move the needle in terms of sales tax there needs to be a tax on food and medicines. She acknowledged that people are cautious about taxing food because of the impacts on lower income tax payers but explained that steps could be taken to minimize those impacts.
On implementation of the state tax changes, members of the Bevin administration served on a panel moderated by Jennifer Barber of Frost Brown Todd LLC to discuss how the state is moving forward after reforms.
Kentucky Commissioner of Revenue Daniel Bork and Office of the State Budget Director Economist Greg Harkenrider cautioned that the state may not bring in as much revenue with the new changes as many are anticipating and discussed specifics for how certain aspects of the law will be implemented.
Legislative leaders discussed the implications of tax reforms and what will come next in a panel moderated by Kentucky Chamber President and CEO Dave Adkisson. Read a full article about that discussion on The Bottom Line here.
Wrapping up the day, a panel including Rep. Ken Fleming and representatives from different organizations within the state laid out what should come next in terms of Kentucky tax reform. Rep. Fleming spoke about the new tax expenditure task force that he co-chairs which will begin meeting later this week. The panelists offered several points including the need to repeal the Limited Liability Entity Tax, considerations regarding local tax changes, and needed guidance from the IRS expected later this year.