FRANKFORT, Ky. — A Kentucky task force Thursday discussed recommendations that encourage the Kentucky General Assembly to phase out hundreds of state tax exemptions and credits by mid-2020.
Task Force on Tax Expenditures Co-Chair Rep. Ken Fleming, R-Louisville, said the recommended phase-out – which would have to be introduced and passed in a future session of the General Assembly before it would have a chance to become law – would sunset all state tax expenditures except those ranking in the top 10 by dollar value. Those top expenditures include food, medical supplies and other costs that Fleming said have a “significant” social impact. Some of the remaining expenditures, he explained, may have a smaller social impact.
“Some of these things will make sense, whereas some have a really high impact,” said Fleming. “Those things will have to be taken into consideration and weights will be applied to those when you go through and look at these next year and the year after.”
Fleming did clarify that the task force recommendation does not dictate what action is taken.
“We’re not sitting here going through and pinpointing” any future action, he said. “The (General Assembly) will hopefully need to take action on some of the things we recommended in here in terms of making sure we go down a very strong and positive path. … I think we are in a very tough situation when it comes to the financial stability of the Commonwealth.”
The task force proposal was one of six draft recommendations reported by the panel, created this year to review and analyze state tax expenditures.
The other five recommendations in the draft report propose that the General Assembly: create a Tax Expenditures Oversight Board for future review of phased-out expenditures; improve the state’s Tax Expenditure Analysis report data; improve collection of data by the Department of Revenue; require by law that each state budget bill contain a summary of the state’s tax expenditure analysis; and require that all new proposed tax expenditures initially sunset after five years.
Fleming said the task force recognizes that the recommendations are “aggressive” but necessary.
“We definitely have to have serious consideration and political will to go through this process … regardless of some of the implications it might have, because we’ve got to be mindful of the overall stability of the Commonwealth,” he said.
Interim Joint Committee on Appropriations and Revenue Co-Chair Sen. Christian McDaniel, R-Taylor Mill, who co-chairs the task force with Fleming, said changes to the tax code are “never easy” but may be “very necessary to move our economy forward into the 21st century.”
“The members of this committee have done a commendable job on that,” said McDaniel.
Tax expenditures cost Kentucky billions of dollars each fiscal year according to the Office of the State Budget Director. The office reports that estimated tax expenditures – excluding tourism credits and subsides, TIF (tax increment financing) expenditures, federal tax expenditures and tax expenditures related to sales tax on services—will total $9.7 billion this fiscal year and over $10 billion in fiscal year 2019-2020.