New taxes won’t do much for Ky.
Published 12:51 pm Friday, July 6, 2018
In Kentucky, conventional wisdom has long held that if lawmakers are going to raise taxes (and inevitably make some voters mad), the increase should be big enough to both accomplish something dramatic and avoid the need for another one any time soon (like three or four decades).
In 2018, the Republicans who control the legislature junked that conventional wisdom.
Key GOP lawmakers say their changes, most of which take effect July 1, are just a start on revamping Kentucky’s tax code away from taxing income (both corporate and individual) to taxing sales.
This year they expanded the sales tax to not just goods but also some services and membership fees, something we have long endorsed.
Kentuckians will fork over an additional $338.2 million in fiscal year 2019 through new taxes on sales and a 50-cent increase in the excise tax on a pack of cigarettes.
But the tax changes will boost state coffers by only $192.3 million (less than a 2 percent increase in the general fund). That’s because the new taxes will be offset by $145.9 million in income tax cuts, something we did not endorse. By the end of the biennium, $190.2 million will be lost in income tax revenue.
Even without the tax increases, economic growth is expected to add $300 million to state revenue, for an increase of $500 million in the $11 billion-plus general fund.
That does not include an expected windfall from a recent Supreme Court ruling authorizing states to collect taxes on internet sales. The U.S. Government Accountability Office estimates Kentucky stands to gain $93 million to $140 million.
The increases in revenue were enough to avoid truly draconian cuts to public schools and fully fund public pensions, at a time when teachers overflowed the Capitol and were keeping a sharp eye on lawmakers.
But the increases fall far short of the investments Kentucky needs to make in its people and infrastructure.
Education, social services and public protection have suffered a decade of budget cuts. The funding gap between poor school districts and those with more robust property tax bases has grown almost as wide as it was before a much larger tax increase in 1990 paid for sweeping school reforms.
This year’s tax changes provide the biggest benefit to those with the highest incomes. Smokers, who usually have lower levels of income and education, will be paying to give the wealthiest Kentuckians a break.
Republicans are betting that doubling down on their changes in the future — shifting from what they see as taxing productivity to taxing consumption — will trigger private investment, thus energizing the economy and increasing government revenues through growth.
That economic theory has panned out pretty much nowhere, though it will provide a convenient excuse for those who want to cut government even more.
The Lexington Herald-Leader