Sunday, April 25, 1999

Poor could get a tax break

Bill offers credit for earned income

The Cincinnati Enquirer

        FRANKFORT — Kentucky's lowest wage earners would receive a tax break under legislation the General Assembly is expected to consider early next year.

        A bill has been prefiled for the legislature's regular biannual session, scheduled to begin in January, that would allow low-income earners to be eligible for a state earned-income tax credit. It is similar to a credit they can now claim on their federal income taxes.

        A new legislative committee is also studying legislation that would raise the annual income level at which the so-called “working poor” are taxed.

        State Sen. Dick Roeding, R-Lakeside Park, said it's too early to tell which proposal has the best chance at passing, because most lawmakers haven't seen the bills or drafts circulating around Frankfort.

        “Whether we do the earned-income credit or just raise the bottom level at which people are taxed,” said Mr. Roeding, a longtime advocate of lowering state taxes, “I'll do whatever is simplest and affects and helps the most people.”

        Any moves to lower taxes, however, must be tempered because of constraints on the state's budget.

        In a recent meeting with legislative leaders, Gov. Paul Patton said tax cuts passed by the legislature over the last few years have reduced revenue to the state by as much as $350 million annually.

        In addition, other revenue coming to the state has lagged behind budget forecasts.

        It's almost certain that lawmakers will reduce the state property tax on vehicles, further reducing the state budget by about $70 million a year.

        “There's going to be a tremendous amount of pressure on the budget for the next session, and we're going to have to make some difficult decisions,” Mr. Patton said after that meeting with lawmakers.

        Yet sentiment seems strong for some kind of tax break for low-wage earners.

        A recent report by The Center on Budget and Policy Priorities, a nonpartisan policy institute in Washington, found Kentucky places a heavy tax burden on the poor by imposing a tax on families making as little as $3,000 a year. A two-parent family of four with poverty-level income paid $550 in income taxes in 1998, the highest in the country.

        House Majority Caucus Chairman Jim Callahan, D-Wilder, is part of a legislative committee studying and drafting bills and proposals dealing with taxes. The committee is scheduled to meet this week in Frankfort.

        “We not only have to look at what taxes should be reduced, or how we can give some tax relief to the working poor,” Mr. Callahan said. “But also what are the financial repercussions of cutting those taxes.

        “You have to realize when you cut taxes, you cut revenue. And you can't keep cutting funding without it affecting programs and spending down the road,” he said.

        Rep. Jim Wayne, D-Louisville, has introduced the legislation that would provide low wage earners with a state earned-income tax credit.

        Under the proposal, low-income families as defined by federal poverty guidelines would get a state credit amounting to 5 percent of their federal credit beginning in 2001, with the rate increasing to 10 percent in 2002 and 15 percent in 2003.

        Mr. Wayne said a single parent of two earning $10,712 now pays $819 in federal taxes and $235 in state taxes, but gets back $3,756 through the federal earned-income tax credit.

        When fully implemented at 15 percent, the parent would get back an additional $563 with the proposed state tax credit, Mr. Wayne said.

        Ten states offer similar credits.

        “Working Kentuckians who cannot afford life's basics deserve a break,” he said. “We should be helping them, not hurting them.”

        Mr. Wayne's bill, which would cost the state $150 million annually when fully implemented, also proposes phasing out the vehicle property tax on automobiles assessed under $15,000.

        Plans are also circulating to totally eliminate the tax or reduce it by 30 percent, which is the state's share of the tax.

        The remaining 70 percent goes to cities, counties, school districts and other local government taxing entities, including fire departments and libraries.

        Other lawmakers want to raise the income level at which the working poor are taxed.

        Currently, Kentucky wage earners pay taxes on income starting at $3,000. Mr. Roeding said that could possibly be raised to as much as $8,000 to $9,000.

        “We need tax reform,” said Rep. Arnold Simpson, D-Covington. “I want to see the legislature start with the property tax on vehicles, and once that is accomplished look at other forms of relief.

        The Louisville Courier-Journal contributed to this story.



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- Poor could get a tax break