LEXINGTON, Ky. (Jan. 5, 2012) –At the annual Kentucky Chamber Day dinner in Lexington, Gov. Steve Beshear announced he will appoint a new commission on tax reform, led by Lt. Governor Jerry Abramson. The Blue Ribbon Commission on Tax Reform will study issues related to taxes in the state and will also hold public meetings on the subject. The Governor will also hire a consultant to study what tax efforts are working in nearby states.
In 2011, the national Tax Foundation ranked Kentucky’s business tax climate as the 19th best in the nation, and in the growth rate of new jobs over the past year, Kentucky ranks 19th in the country. Despite those high national rankings, Gov. Beshear said the state has room to improve its tax code in order to encourage economic growth.
“Kentucky’s system of taxation served us well during the recession,” said Gov. Beshear. “But to prepare ourselves to compete in the future, we must, in a thoughtful and non-partisan way, re-align our system with the principles of fairness and with a 21st century economy.”
In the State of the Commonwealth address Wednesday evening, the Governor said the process for tax reform would be inclusive and encourage all voices to have input. All options will be considered, and the tax changes will be framed to meet the state’s future needs. In particular, the Governor expects the Commission to recommend ways to increase revenues in order to pay for and protect critical state services, such as education, public protection, and job creation.
Five elements for successful tax reform
The Governor set five goals for the commission:
· Fairness: The Commission will review the tax burden that different taxpayers shoulder, from Kentucky families to Kentucky businesses, from small businesses to big businesses, and within different industry sectors in the state. The tax system should treat people equitably.
· Competitiveness: Any changes to the tax system should ensure that Kentucky continues to attract jobs and investment to the state, while keeping and protecting the jobs and businesses we already have. The Commission will review how Kentucky compares to other states regarding business taxes, and identify ways to improve business tax competitiveness.
· Simplicity and Compliance: A tax system should be easy to understand and follow. The Commission will make recommendations to ensure compliance with Kentucky’s tax system is simple for individuals and businesses and to ensure efficient administration by the state.
· Elasticity: The tax code should allow state revenue performance to mirror economic performance. While Kentucky’s code has performed well during the recession, revenues may not keep pace once the economy recovers.
· Adequacy: The tax reform process should create a tax system that provides adequate revenue to fund critical state services. The tax structure should allow revenues to grow along with the economy.
The Commission will work over the next several months, with recommended legislation expected before the 2013 General Assembly. This allows time to build consensus as well as give more opportunity for the state’s economic recovery to take hold.
Gov. Beshear applauded the state Chamber for their work on the Governor’s Unemployment Insurance Task Force in 2009, which led to a recommendation from business and labor interests on how to keep the crucial unemployment insurance fund solvent.
Kentucky borrowed approximately $948 million from the federal government to support unemployment insurance, and thanks to the formula developed by the task force, has a plan for paying back the principal on that loan. Now, business and labor interests are again working with state leaders to figure out a mechanism to pay the interest on funds borrowed from the federal government.
“I’m confident that if we continue to sit down and negotiate in good faith, this problem will be solved,” said Gov. Beshear.