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Group: Tax Commission Raises Revnue & Gives Corporate Tax Cut

(NOTE: "Revenue" is misspelled in the headline but the error was discovered after publication and fixing it would break the link. Apologies.)

The Kentucky Center for Economic Policy gives mixed reviews to the recommendations made by Governor Steve Beshear's tax commission, which is led by Lt. Gov. Jerry Abramson. Here is KCEP's assessment:

The commission finalized a package that raises approximately $690 million in the first year and closes various holes in the tax code that are limiting the pace of state revenue growth.

The most important changes involve strengthening the individual income tax. After much debate, the commission made the right decision to maintain a graduated income tax after pressure from some commissioners to move to a flat tax. While the commission's proposal reduces income tax rates slightly, it also makes them somewhat more graduated and raises about $500 million more from the income tax alone.

The plan raises revenue in part through putting a flat cap on itemized deductions that will particularly limit deductions for higher-income people while protecting many middle-income Kentuckians. The recommendations also include a proposal to lower the income tax exclusion on retirement income from its current $41,110 to $30,000, and to phase out that exclusion entirely for those with more than $60,000 in total annual income. Both of those changes will make the income tax somewhat more progressive while lessening restrictions on income tax growth.

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The biggest problem with the final recommendations is the inclusion of about $120 million in unneeded corporate tax cuts, most of which comes from a proposal to move to a single sales factor formula in calculating corporate income taxes, which we have critiqued here. That proposal is estimated to cost $110 million annually, an increase from the $65 million estimate that commissioners received from consultants a few months ago. Single sales factor would be a big tax windfall to a minority of large corporations, and there is no guarantee or requirement that those companies will grow jobs or increase investment in Kentucky in exchange for the tax cuts.

These cuts were passed despite information shared with the commission showing that Kentucky's business taxes are already low compared to other states, and despite a lack of evidence demonstrating that business tax cuts are a cost-effective way to create jobs. The recommendations would wipe out more than one-fourth of Kentucky's corporate income taxes.

KCEP explains other recommendations in the piece: Click Here

Meanwhile, a columnist for the Herald-Leader in Lexington writes that the tax commission "showed courage":

You have to give the task force credit. Rather than proposing safe but inadequate "revenue neutral" tax reform, task force members had the courage to recommend a plan that would add $690 million in revenue during the first year.

That's still short of what Kentucky needs, but it's a start. Pension obligations will eat up at least $350 million and the state budget has already been cut a dozen times for a total of more than $1.6 billion.

Tom Eblen's full column: Herald-Leader