WHO WILL be the winners and who will be the losers if legislators negotiating behind closed doors on the state budget keep Gov. Fletcher's tax plan largely intact?
It's clear that the wealthy and corporations will benefit. Everyone else loses. And the state will be limited in its ability to move forward, build on the progress we've made in health care and education, and promise a bright future for our children and grandchildren.
All Kentuckians need to understand what is at stake.
Fletcher based his tax plan and the promise of future benefits on a faulty premise — that tax cuts for corporations and the wealthy will lead to economic growth. It simply doesn't work that way. In a new study, economist Robert Lynch finds that smart investments in public services are much more effective than mindless tax cuts as a way to create jobs.
"The real lesson here for legislators and local policy makers is that what makes a community a good place to do business looks a lot like what makes a community a good place to live," says Lynch. "That means good schools, good police and fire protection, a modern and well-maintained transportation infrastructure and good all-around public services. Instead of creating jobs, tax cutting strategies that undermine government's ability to provide quality services can end up destroying jobs."
There is no question that our tax system is broken and in need of a complete overhaul. But the proposal offered by the Governor and passed by Senate Republicans fails to fix those problems. In fact, it ignores the most pressing problem we have — the desperate need for additional revenue now. It increases the unfairness of Kentucky's tax system. And it will endanger Kentucky's ability to pay for important services and investments in the future with a clever "trigger" designed to shrink the size of government services.
So let's stop calling it tax modernization. There is nothing modern about shifting taxes to the poor and giving our public treasure to corporations and the wealthy. This plan fails the basic tests of good tax reform on at least three counts:
The Governor's plan makes our system less fair. Already, Kentucky families at the poverty line face the highest income tax bill of any state. The poorest 20 percent of Kentuckians pay 13 percent of their income in state and local taxes while the wealthiest 20 percent pay only a 10 percent share. But according to analysis by the Institute on Taxation and Economic Policy, on average only the wealthiest 20 percent will see their taxes decline under the Governor's proposal. While those making less than $12,600 will pay $27 more on average, the wealthiest 1 percent (those with incomes of at least $246,700) will get an average state tax cut of $1,397. The Governor's plan is being sold to legislators and to the public as a way to help low-income folks. The facts don't support this claim.
The Governor's plan fails to raise adequate revenue to meet Kentucky's urgent needs. Our state is in a serious budget crisis that no amount of clever accounting can hide. Our schools are cutting staff and slashing programs. Cuts in Medicaid and social programs are leaving many Kentuckians without essential services. Colleges are raising tuition every year, putting the dream of education beyond reach for more and more people. The Governor's plan does not address Kentucky's needs. In this time of financial crisis, a "revenue neutral" tax plan is not neutral at all.
The Governor's plan fails to build a tax system that will grow with Kentucky's economy. In the final version of his plan, Fletcher backed off expanding the sales tax to services, an essential part of any "modernization." The biggest single source of revenue is a cigarette tax increase, which while needed for public health reasons is not a long-term revenue solution. Even more troubling is the powerful "trigger mechanism" buried in the fine print. This formula will mandate further tax cuts in the future and erode Kentucky's income tax base.
The bottom line is clear: the Governor's plan is not a good choice for Kentucky.
We urge the leaders and members of the General Assembly to act wisely and do tax reform right. We are a state with large needs and big dreams. We should not accept Fletcher's plan to shrink public investments, reduce public services, and shift taxes away from corporations and the wealthy. There are better options.
Courageous leaders are called upon to stop this plan in its tracks and chart a better course for Kentucky.
Kim Wolf of Kentuckians For The Commonwealth, Jason Bailey of the Democracy Resource Center and Debra Miller of Kentucky Youth Advocates are partners in an alliance advocating for economic justice in Kentucky. Special to The Courier-Journal