Thursday, January 5, 2012

Tax Reform

Kentucky's top legislative leaders joined by the Governor addressed the Kentucky Chamber of Commerce Annual Dinner in Lexington on Thursday night. All of the major issues facing the 2012 Session from comprehensive drug legislation, improving education, expanded gambling, and public employee pensions were all discussed. However, one issue was mentioned more than any other...tax reform.

On the heels of his State of the Commonwealth Address, where Governor Beshear touted the need for tax reform, he utilized tonight's Chamber Dinner as a platform to announce a Blue Ribbon Commission that will be his mechanism for generating a tax reform proposal.

Top Takeaways:

1. We said after the State of the Commonwealth address, that the Governor had given the issue of tax reform a shot in the arm, but his success on this issue would be determined by his level of engagement. Certainly following through with this announcement shows he is at the minimum giving it more than lip service.

2. Gov. Beshear has appointed Lt. Gov. Abramson to run this group, furthering the notion that Abramson will be an active Lt. Gov. However, there are still few details about who will serve on this panel. Certainly, the notion that all voices will be heard and all options are on the table is laudable, but not knowing who will be making recommendations gives one pause.

The press release below gives more details in terms of the Governor's goals for tax reform.





Commonwealth of Kentucky
Office of the Governor

FOR IMMEDIATE RELEASE 
Contact:
Kerri Richardson

Terry Sebastian

Gov. Beshear Announces Blue Ribbon Commission on Tax Reform; Calls for Fairer, More Competitive Tax Code
Raising revenue a key component of Commission's mission

LEXINGTON, Ky.  (Jan. 5, 2012) –At the annual Kentucky Chamber Day dinner in Lexington, Governor 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.

Unemployment Insurance
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.

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Follow Governor Beshear on Twitter @Govstevebeshear, read the Governor's personal notes on his blog at http://blog.governor.ky.gov/, and view the Governor's video commentaries at http://www.youtube.com/governorbeshear.




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