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Tax reform needed now in Kentucky

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If there is a single issue on which lawmakers, business leaders and Kentucky taxpayers can agree, it’s the need for overhaul of the state’s tax code.

It’s been called outdated, ineffective, inadequate and unbalanced among many other negative descriptors. Moreover, it’s the quickest target of blame for everything from Kentucky’s struggle to compete with other states in attracting new and expanded economic development to adequately fund education improvement to effectively deal with a broad range of social problems affecting children, the elderly and the poor.

Since February, Gov. Steve Beshear’s Blue Ribbon Commission on Tax Reform has been working on recommendations for improving the tax code.

Chaired by Lt. Gov. Jerry Abramson, the commission’s final recommendation report is due Dec. 15.

The governor set five goals for the commission’s recommendations.

Recommended changes should streamline the tax code in such a way as to treat individuals and businesses fairly.

The code should be a tool to better attract new jobs and retain those already in the state.

Revisions should make the code more easily understood and followed by individuals and businesses.

Revenues produced through the recommended changes should better mirror the ups and downs of the state’s economy.

And finally, the revised code should better fund critical state services.

That’s quite a mandate.

Economists and consultants with the University of Kentucky’s Center for Business and Economic Research predict dire consequences should the code remain as is. In a report produced for the commission, researchers predict the state could face a $1 billion revenue shortfall by 2020 unless significant revisions are enacted. They also warn Kentucky will continue to fall behind competing states in business growth, retention and recruitment unless reform is made.

So what must happen to avoid this undesirable outcome? In the simplest of terms, either revenue must grow through an increase in taxes, state spending must decrease through cuts to the budget or some effective combination of the two. But life isn’t that simple when it comes to state and federal bureaucracies.

Although its final report has yet to be submitted, the commission already has recommended several changes. Increasing the tax on cigarettes to $1 per pack and raising taxes on other forms of tobacco, allowing cities to implement local sales taxes for limited periods of time regardless of classification and broadening sales taxes to include selected services on luxury items are just a few of the 26 or so recommendations the commission has agreed upon.

It’s true Kentucky’s tax code is problematic. Hopefully, the commission’s final recommendations will be broad enough in scope and effective enough in structure, to deal with the size and magnitude of Kentucky’s problems.

But if there is a more problematic issue than the outdated tax code itself, it is that our political leaders haven’t in the past decade mustered up the gumption to make hard decisions to transform it.

Will they be any more likely this time to have the leadership strength to transform the tax structure from being a barrier to becoming a bridge to a more prosperous future for the Commonwealth?

Only time will tell. And time is running out.

• This editorial was originally published in The News-Enterprise of Elizabethtown.