Kentucky, like the rest of the nation and the world, is experiencing major change, good and bad. Change is a reliable if not always welcome part of life, so why not lean bravely into the curves rather than let the inevitable forces throw us from the cart?
Our commonwealth is blessed with a central location providing one-day’s deliver access to most of the world’s greatest economic market and economy. Leaning in, state officials have embraced a logistics sector that is booming and attracting investment by the biggest players in today’s world.
Now, though, the state needs to invest in itself. The governor remains committed to taking on tax and pension system reform to put our state’s fiscal house in order, specifically mentioning higher revenues. He is to be commended. Stay strong, governor.
I was a newspaper reporter in Florida in 1987 when that no-income-tax state enacted a tax on services to broaden its sales tax base. It was an innovative and reasonable move expected then, 30 years ago, to increase state revenue by $1 billion a year and an additional $2.3 billion in less than a decade.
Florida had a reputation for progressive, smart governance then after the administrations of Reubin Askew and Bob Graham, each savvy two-term governors. Tallahassee officials spent time planning expansion of the sales tax base and effected it passive-aggressively by sunsetting the exemption on services.
But political leaders there lost their nerve and gave in at the last second, snatching away defeat from the nearly closed jaws of fiscal victory.
There was complaining, of course, the loudest coming from the then-still-significant newspaper and advertising industry. A few national advertisers said they would boycott, but it made no financial sense in the fast-growing, third-largest market in the nation. Anti-tax groups knocked the new Republican governor, Bob Martinez. But it was the newspaper editorial pages that tipped the political scales.
Newspaper companies, then in their pre-Internet heyday, mounted a campaign attacking the services tax and the governor especially. Papers large and small, from the Panhandle to Key West, published ongoing series of editorials. It began with the sunset in July. The heavy flak had largely died down and acceptance was setting in two months later when the governor flipped and said he wanted to reverse the services tax. Democratic legislative leaders quickly followed suit, foreseeing the prospect of ongoing political clubbing by the governor, backed by renewed editorial page fusillades.
It was costly not just to Florida but to the rest of the laboratories of democracy, as former Supreme Court Justice Louis Brandeis called state governments. Florida instead raised its general sales tax another penny and anti-tax zealots across the nation were emboldened to threaten public officials. Political scientists in other state capitals have been afraid to tax services for the past 30 years lest the experiment blow up in their faces.
Kentucky today faces a very serious need to modernize its tax system to fit today’s economic priorities and to generate the revenue required for a competitive education system while also paying down massive unfunded liabilities for public pension systems. Business wants lower income tax rates, which requires expanding sales taxes to a variety of services. Many Kentucky business leaders say they are willing to pay more for better education, the foundation of workforce development, because workforce skill is where we compete with our neighbors and the rest of the world for jobs, income and wealth generation.
Today’s business budgets are tight. Abrupt adjustment to a new sales tax on their services will be difficult and nerve-racking for any operation with slim margins. Business owners and manager face either raising prices to cost-conscious customers or lowering bottom lines.
A phase-in over two or more years would soften the blow but be tricky to administer. It is doable, though. The entire job that Gov. Matt Bevin, House Speaker Jeff Hoover, Senate President Robert Stivers and the rest of the General Assembly face is doable – if they have the courage to make decisions for the good of the state and stand by them. ■
Mark Green is executive editor of The Lane Report. He can be reached at [email protected].