Daily Independent (Ashland, KY)

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February 4, 2014

Beshear puts tax reform plan on table

FRANKFORT — Gov. Steve Beshear wants to raise about $210 million in extra revenue each year by making changes to an “archaic tax code which was developed for the 20th century economy” but is now holding back Kentucky.

Most of the money would come from applying the 6 percent sales tax to some services, primarily on repairs to personal property, including automobiles, some recreational services like golf courses and country clubs and some residential and personal services like lawn care, janitorial services and security systems. Those would generate $280 million in new revenue.

He also wants to increase the cigarette tax to $1 and tax sales of electronic cigarettes, generating about $124 million. Reductions in other areas would offset some of the revenue gains, however.

Reaction was generally positive, although with reservations. Lawmakers seemed for the most part pleased Beshear put a proposal on the table and they can begin negotiating a final plan.

The plan would lower individual and personal income tax rates, by one-tenth of a percent for corporations and for the top income bracket. Individual brackets would be “compressed,” with anyone making less than $10,000 a year taxed at a 4 percent rate; those making between $10,000 and $50,000 at 5.5 percent; between $50,000 and $100,000 at 5.75 percent; and those making over $100,000 at 5.9 percent.

But while the lowest income levels would actually see a rate increase from 2 and 3 percent, Beshear said those will be offset by a refundable earned income tax credit of 7.5 percent of the federal credit. The changes in income tax rates would cost the state about $413 million each year.

Beshear would also reduce exemptions on retirement income for those with a gross income of $80,000 or more, eliminating it altogether for those making more than $100,000.

Some parts are designed to protect Kentucky’s “signature industries.” Beshear wants an income tax credit for bourbon distillers, sales tax exemptions on equine products, pharmaceuticals for food animals, and lower wholesale taxes on beer, wine and distilled spirits. It would reduce corporate taxes of multi-state companies by changing the way they compute Kentucky taxes.

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