A public meeting of the governor’s Blue Ribbon Tax Commission is set for May 29 at Paducah Tilghman High School. The session is one of several the commission is holding around the state to gather comments from citizens on the good, the bad and the frustrating elements of Kentucky’s system of raising money to finance government programs and operations.
The Kentucky Chamber of Commerce views the commission’s work as an opportunity for the state to take a close look at the realities of taxes and spending, and to develop a system that will help build taxpayer confidence in how their money is being spent while ensuring the long-term sustainability of important government programs.
The Chamber, whose members employ more than half the state’s work force, believes several basic points should be kept in mind as the commission conducts its review.
• Improving Kentucky’s competitiveness relative to other states is critical to building an economy that will produce more tax revenue to fund needed programs.
• State spending must be subject to a close review in light of the fact that spending priorities over the past few decades have shifted toward prisons, pensions and health care and away from investments in education and economic development.
• The state should not overreact to the nation’s worst economic downturn in more than 75 years — one that led a decline in revenue collections.
• State spending has grown faster, on average, than the state’s economy over the past 20 years.
The economic growth necessary to produce more tax revenue cannot happen if Kentucky’s employers are put at a disadvantage through tax changes that hamper their ability to expand and create or retain jobs.
But slow state revenue growth in recent years has prompted some calls for higher taxes. One point that can get lost in these discussions is that the economic downturn prompted that slowing revenue growth, and it is doubtful that any tax system could have fully protected Kentucky from the impact of such a recession.
Many people hear the phrase “tax reform” to mean “tax increase.” As a practical matter, any benefits resulting from tax reform are likely to dissipate quickly unless serious attention is paid to state spending.
The Chamber’s 2009 Leaky Bucket report, and follow-up report in 2011, noted that unsustainable spending in several areas continues to pull money away from investments in education and economic development.
Although progress has been made in slowing the spending increases, the growth rate in Medicaid, corrections and public employee health insurance spending continued to outpace that of the overall state budget through fiscal 2012.
The bottom line: unless this spending is brought under control, it really doesn’t matter how much tax revenue is raised. The “leaks” in the spending budget will ensure that no amount is enough.
Two other items to note:
• Local occupational taxes are putting Kentucky’s major metropolitan areas at a competitive disadvantage with their peer cities in the South. Kentucky’s cities are critical to the state’s overall prosperity, but these taxes limit our cities’ prospects for attracting high-quality jobs. Compared to other states, Kentucky relies too heavily on income taxes at the state and local levels.
• Kentucky ranks 30th in the nation in the amount of its residents’ personal income that goes to government spending, but Kentuckians earn less than the residents of 43 other states. State government has grown beyond the capacity of citizens and businesses to support it.
Dave Adkisson is president of the Kentucky Chamber of Commerce.