Monday, August 20, 2001

Have a tax reform idea? Step in line

Budget, economy will determine what action is taken

By Mark R. Chellgren
The Associated Press

        FRANKFORT — When taxes are the topic, there is no shortage of suggestions.

        Months before the 2002 General Assembly convenes, at least five bills to provide a tax break to somebody have been filed. And a two-day public hearing on tax reform scheduled for this week has drawn a growing list of interest groups that want a break.

        All the tax discussion takes place in the context of a faltering economy and a state tax base that has failed to live up to expectations.

        That's why the prospect for action on taxes, as opposed to just talk, is so uncertain.

        “It will depend on what the budget looks like and what the economy does,” said Sen. Richie Sanders, R-Franklin, chairman of the Senate Appropriations and Revenue Committee. “Tax reform is a pretty difficult thing to do. That's why it hasn't been done for a while.”

        Rep. Harry Moberly, D-Rich mond, the House chairman, said the tax policy subcommittee will also make some political determinations when it produces a report and recommendations before the session in January.

        “We're not interested in finally recommending anything that cannot be passed,” Mr. Moberly said.

        Kentucky's tax system arguably never has been the subject of serious reform. Recent history certainly shows that taxes are raised or lowered based on considerations of the moment.

        After the courts ruled that Kentucky's exemption for government pensions from income taxes was unfair, for example, the Legislature moved quickly to exempt private pensions from taxation. Many argued then that a more fiscally prudent move would have been to exempt only a portion of all pension income from taxation, perhaps the first $25,000 or so.

        When taxes on long-distance telephone calls were increased in 2000, it was in part to finance a long list of projects legislators wanted in their home districts. An alternative package from Gov. Paul Patton, which would have reduced taxes on some poorer Kentuckians and installed a telecommunications tax increase preferred by the industry, was passed in the House but dismissed with out discussion in the increasingly political state Senate.

        While the Legislature finally agreed to study tax reform before the 2002 session, the pace of work has been leisurely at best. Mr. Sanders said the committee probably will ask its consultant to draft a report on what a better tax system might look like.

        “It would be up to us to act on it or not act on it,” Mr. Sanders said.

        Already signed up to speak at the hearing this week is a varied group.

        Debra Miller of Kentucky Youth Advocates will promote the idea of an earned income tax credit in Kentucky similar to the federal credit. Rep. Jim Wayne, D-Louisville, has enlisted several co-sponsors for a bill to create such a credit.

        The motor carriers association will continue to attack Kentucky's sales tax on large trucks and relatively high annual registration fees. On the flip side, Kentuckians for Better Transportation, a lobbying association for the construction industry, will argue that Kentucky's gas and diesel taxes should be increased to finance more road improvements.

        The coal industry is likely to repeat its decades-long pleas for more tax relief. The horse industry is also scheduled to repeat its recent tale of woe. The tracks are asking for a break on pari-mutuel taxes, and any discussion of financial problems at race tracks is likely to lead to the topic of slot machines at tracks.

        The Kentucky Chamber of Commerce and homebuilders are also scheduled to present.

        Some legislators have proposed other tax reductions:

        • Sen. David Boswell, D-Owensboro, wants to eliminate the sales tax on prescription drugs dispensed at a doctor's office.

        • Rep. Mike Cherry, D-Princeton, wants limestone quarrying included in the definition of manufacturing, which would have the effect of extending a sales tax exemption on equipment to that industry.

        • Rep. Bob Damron, D-Nicholasville, has again raised his idea of creating a “sales tax holiday” every August when clothing, school supplies and computers would not be subject to the 6 percent sales tax.

        • Rep. Gary Tapp, R-Shelbyville, has proposed a change in the gas tax paid by those who use it for agricultural purposes.


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