General Assembly gets it right on HB 354
The difficult choices resulting from a broken revenue and taxation system were on display this week in Frankfort.
Those choices were evident in the need for House Bill 354, which lets banks with a Kentucky charter pay corporate income taxes instead of a bank franchise tax. The latter is a complex formula that is based on how much capital a bank has. The banking industry has been asking for the change for years, The Associated Press reported.
The proposal would cost the state $56 million a year beginning in 2021. It would not affect big banks headquartered out of state but instead those that maintain a Kentucky charter. Lawmakers and industry advocates say they hope the change will stop the trend of local banks selling to out-of-state buyers, who then move the capital to other states to avoid the tax, the AP reported.
Since 2000, Kentucky has lost at least 56 state-chartered banks, leaving 124 still operating, according to the Kentucky Department of Financial Institutions’ annual reports.
This change via 354 is the correct decision. It would be easy to portray this as another tax break for big companies and big banks, but that does not appear correct to us. It is instead a movement to protect Kentucky banks — one of the state’s largest employers.
The financial service industry is very important to our local economies, and often times locally owned banks are the biggest economic drivers in a multitude of ways. This includes employing people, making loans and facilitating commerce. If the state of Kentucky can take steps to improve Kentucky’s business climate through either lower taxes or a less complex tax code, this is good. The simpler the better. The lower the tax rate, the better.
We know from recent events in America that states with high tax rates, and overly burdensome tax codes, are losing people. Kentucky wants to be known as a low tax, and a less is more when it comes to government, type of state. House Bill 354 takes a step in this direction.
There is however another decision that came out of House Bill 354 that we also applaud. The state rolled back the bizarre, misguided taxing structure that hit nonprofits hard on sales taxes during the General Assembly’s prior work on tax reform. Again, the prior tax reform attempts were well intentioned, but the idea of taxing nonprofits like your local YMCA membership or bake sales to benefit a domestic violence shelter are, of course, not what the state of Kentucky needs. It was the right decision to fix this.
All of these steps in our view point to the need for a simplified tax code that is in line with southern states that do everything possible to keep taxes low. We know without question that high taxes drive residents, business and commerce away. This is an undisputed fact, and Kentucky cannot afford to lose a chunk of its population because the tax burden in the state becomes too high.
We also know that the state faces an ominous unfunded pension obligation that is only getting worse. Thus we can say with relative certainty that solving the pension crisis is going to one day result in tax increases at some point — likely significant ones. Add in the fact that the state’s infrastructure and roadways are in dramatic need of funding — and that there is a lot of people pushing for raising the gas tax — and you get the picture. A raise your taxes storm is brewing on the horizon.
The General Assembly needs to hold the line on taxes as much as possible while meeting its obligations. Yes, we may be simpletons, but when it comes to state government, fix the pensions, then make do with what you’ve got.
This is our belief on how the state should approach funding state government.
The Daily Independent of Ashland