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Opinion: Time is now for Kentucky tax reform

Suggested changes to tax code would generate $659 million in new revenue annually

By Lt. Gov. Jerry Abramson

Jerry Abramson is Lieutenant Governor of Kentucky.

FRANKFORT, Ky. (Dec. 18, 2012) — Over the past five years, during the worst of the economic recession, Gov. Steve Beshear had to cut $1.6 billion from the state budget. Families across the state made tough budget decisions, too. While the past few years have been difficult, those bleak economic times forced all of us to reconsider what we value most, and how to make sure that we meet the critical needs of our families.

One of the important lessons we learned in state government is that while our tax system cushioned some of the impact when the economy ran off the tracks, the tax code is not as useful or simple as Kentuckians need it to be. Parts of the tax code are antiquated. Not everyone pays a fair share, and the taxes aren’t easy to understand. Some of the tax code stunts our efforts to keep and attract jobs in a 21st century economy. Most important, the current system isn’t robust enough to guarantee we will have enough money for the services we need most, like education for our kids.

Gov. Beshear recognized that Kentucky can’t afford to wait for tax reform. Early in 2012, he appointed a broad, bipartisan commission to make sure our state doesn’t face another economic crater by failing to update its tax code.

A study of our tax system earlier this summer revealed that without significant changes, Kentucky will face a $1 billion shortfall by 2020.

As chair of Gov. Beshear’s Blue Ribbon Commission on Tax Reform, I am confident that the work by our members over the last 10 months will help to align Kentucky’s tax structure with the principles of fairness, economic competitiveness and a 21st century economy.

The commission delivered its final report to Gov. Beshear on Monday. The governor will study the report before he meets with legislators to build a consensus on moving forward on changes to our tax code.

Our suggested changes to the state tax code would generate roughly $659 million in new revenue annually once fully implemented. These proposals will modernize our tax structure, making it fairer for families and businesses. The changes would position Kentucky to create more jobs, further grow our economy and fund many of the services the commission heard were needed all across the commonwealth.

During our review of the tax code, the commission heard advice from our consultant team, and met with citizens at six town halls across the commonwealth, learning about how our tax system intersects with Kentuckians on an everyday basis.

What we heard loudly and clearly was if Kentucky is going to continue to invest in education, economic development and health services, we must have an adequate tax code that meets the needs of our citizens — businesses and individuals alike.

We have no choice.

During the recession, the governor managed budget cuts and protected key services, such as education, health care and public safety, as best we could. But we can’t allow the persistent and painful budget reductions of a recession to become regular practice, because those needed services will eventually wither.

We can’t afford to continue providing just enough money to cover the barest essentials for classrooms, or just enough money to keep job training programs open. In a 21st century economy, “just enough” isn’t good enough. In order to compete, Kentucky has to build a solid foundation for businesses, families and communities to thrive, and invigorating our out-of-date tax code is a necessary step.

The time to act is now. We purposefully waited for our state’s economy to show signs of stability before moving on tax reform, because we needed to get past the worst of the recession before making significant structural change. Recently, the federal Bureau of Labor Statistics announced the commonwealth had the second highest percentage of job growth in the nation from September 2011 to September 2012. Our economy is now in a prime position not only to handle the proposed tax reforms, but also to thrive because of the positive changes in fairness, simplicity, and business support these reforms will bring.

This makes the recommendations of the tax commission even more critical.

Improving Kentucky’s tax structure is yet another way to ensure that government works for the people, not against them.

We hope you will continue to stay engaged as the governor and the General Assembly discuss our path forward toward real tax reform. You can find a copy of our final report on my website, www.ltgovernor.ky.gov.