Daily Independent (Ashland, KY)

February 11, 2014

Budget committees get look at tax reform proposal

CNHI News Service

FRANKFORT — The Senate and House budget committees got their first real look at Gov. Steve Beshear’s tax reform proposal Tuesday, but there wasn’t any immediate indication it is likely to pass.

Lt. Gov. Jerry Abramson, who headed up a Blue Ribbon Commission on Tax Reform appointed by Beshear two years ago and from whose report Beshear draws most of his plan, briefed the Senate and House Appropriations and Revenue committees Tuesday.

The briefings provided little new information, and questions from the House committee were relatively few with most lawmakers prefacing their questions or comments by commending the governor for putting forth a plan.

But House A&R Chairman Rick Rand, D-Bedford, said the “process is just the starting point for discussion” and reminding reporters that Beshear said he won’t demand either chamber pass a bill unless there is a “consensus” between both and both parties.

Later in the day, House Speaker Greg Stumbo, D-Prestonsburg, again called the prospects “daunting” for passing such a significant — and politically controversial — measure in an election year when all 100 House seats and 19 of 38 Senate seats are on the ballot. The state General Fund budget has been cut $1.6 billion since 2009 and without some form of new revenue, Beshear says the budget for the next two years will also contain “harmful cuts” to services “vital to Kentuckians.”

Some lawmakers appear to prefer turning to casino gambling to produce new revenue but prospects for that also appeared to grow dimmer Monday night when the Senate Republicans caucused and announced they don’t have enough votes to pass a constitutional amendment proposed by Caucus Chair Dan Seum, R-Louisville.

The bill Abramson took to the budget committees proposes a variety of “targeted” tax increases and reductions which would net the state about $210 million more in its first year or so.

A major revenue producer is application of the 6 percent sales tax to selected services — labor on equipment repairs and installation such as automobiles; some commercial, residential and personal services such as lawn care, janitor services and warranty services contracts; and recreational services such as golf course and country club fees, campgrounds and fitness and recreational services.

It would also limit tax exemptions for private retirement income (excluding Social Security), raise the cigarette tax from 60 cents to a dollar a pack and tax electronic cigarettes.

But those revenue gains would be offset in part by reductions in the top corporate and individual income tax rates; reduced taxes on industry; and a refundable Earned Income Tax Credit for lower income groups.

Most questions from lawmakers centered on the retirement income changes – currently retirement income is exempt up to $41,100, significantly more than most states. Beshear wants to tax retirement income when a filer’s adjusted gross income reaches $80,000 and would eliminate the exemption for those with adjusted gross income of $100,000 or more.

Abramson said those changes would affect about 90,200 Kentuckians whose average AGI is about $215,000.

Rep. Jim Wayne, D-Louisville, who was a non-voting member of the tax reform commission, said the proposal doesn’t do enough to help low income groups and said some of the tax benefits to existing business and industry in Kentucky won’t help recruit “a single job.”

No action was planned or taken on the bill Tuesday by either committee.

RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.