Tax reform reminds us of that old adage about the weather. Politicians love to talk about radically exchanging our system of taxation, but they seldom, if ever, actually get around to doing something about it. That’s why we are skeptical about the renewed talk about tax reform in both Congress and the Kentucky General Assembly leading to anything more than minimal changes in the status quo.
With the federal budget gushing red ink to the tune of a trillion dollars or more a year, revenue flat because of the recession, and President Obama pushing for a costly new health care plan, it is not the least bit surprising that the Value Added Tax, or VAT, would be proposed — again.
Here in Kentucky, where the state is facing a revenue shortfall that is expected to top $1 billion, Rep. Bill Farmer, R-Lexington, is proposing eliminating the income tax on both businesses and individuals in favor of extending the sales tax to all services except food, medicine and a few professional services. Rep. Jim Wayne, D-Louisville, wants to lower taxes on lower income groups by shifting more burden to the wealthy.
For years, many have argued for extending the sales tax to services simply because the greatest growth in Kentucky’s economy is in the service industry. Both the VAT and adding a sales tax on services have the advantage of taxing spending instead of income, but both are inflationary and a bit regressive. A tax on services would mean it would cost us more to have our vehicles repaired, our homes cleaned, our leaking pipes fixed and to get our hair cut.
The VAT would greatly add to the cost of just about everything we buy. That’s why the only way we could support the VAT is if it is coupled with either the elimination of the federal income tax or substantial cuts in the income tax. That not only would put more money in our pockets but greatly simplify our lives. To us, that’s the VAT’s greatest appeal.
Unlike the income tax, everyone would pay the VAT. There is a huge underground economy in this nation in which individuals are paid under the table and do not report the income they earn. But everyone — even thieves and prostitutes — spends and would pay the VAT.
The VAT is a fact of life in Europe, ranging between 18 percent and 25 percent. Even Canada has a relatively modest VAT — called the Goods and Services Tax — of 5 percent, with exceptions for things like groceries.
From Europe’s and Canada’s experience with the VAT, politicians in Washington know this: It raises a ton of money and is much easier to collect than the income tax. Replacing the income tax with the VAT would immediately simplify our system of taxation. Of course, we have developed a rather extensive economy — accountants, bookkeepers, tax lawyers, etc. — whose careers depend on the complexity of the current tax code. We’re not so sure they would really want it simplified.
On Thursday, a coalition of advocacy groups for low-income people challenged legislative leaders and Gov. Steve Beshear to take up comprehensive tax reform during a special session that likely will be in June.
When the General Assembly voted to increase alcohol and tobacco taxes to cover a $456 million shortfall in fiscal year 2009, House Speaker Greg Stumbo, D-Prestonsburg, and Beshear pledged to consider tax reform before the next regular session. But both have said since then tax reform should be studied in-depth before any action is taken.
Kelly Davis, of the Washington, D.C.-based Institute on Taxation and Economic Policy, said poor Kentuckians carry too much of the load in Kentucky while the wealthiest tax payers in the state don’t carry enough of it.
A tax reform bill former Gov. Ernie Fletcher pushed through the General Assembly did ease the tax burden on the working poor, but it did not increase taxes on the wealthiest Kentuckians It was a good first step — but more needs to be done.
There is another reason why meaningful tax reform has never gotten far on either the state or federal level: The distrust of the people in their elected leaders. To the average person on the street, there is no difference between tax reform and tax increases. Former Gov. Paul Patton had an excellent proposal for overhauling the state’s tax code but because many ordinary Kentuckians saw his proposals as a tax increase, they never came close to being enacted.
Politicians in Washington and Frankfort will continue to talk a lot about tax reform, but our hunch is that when all is said and done, that’s all it is: Talk with little or no action.
Editorials
Reforming taxes — 05./31/09
Politicians talking about it doesn’t mean it will happen
- Editorials
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Charles Chattin
Before it merged with Ashland Community College to form Ashland Community and Technical College as a result of the 1997 Higher Education Reform Act, the Ashland Area Vocational-Technical School compiled an impressive record for teaching job skills to young adults and placing more than 85 percent in jobs for which they were trained.
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Try again
It is time for Kentucky Speaker of the House Greg Stumbo, D-Prestonsburg, and Senate President David Williams, R-Burkesville, to cease playing political games and redraw district lines that are compact and are based far more on population changes during the first decade of this century than on partisan politics.
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'Asset poor'
More than one in four Kentucky households are “asset poor,” meaning that they are living from paycheck to paycheck with little or no financial cushion to fall back on should they suddenly lose their jobs or have another emergency resulting in a temporary loss of or delcine in income.
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Safer mines
The head of the federal Mine Safety and Health Administration (MSHA) says coal operators throughout the country are improving their operations and, as a result, mines are becoming safer. However, MSHA chief Joe Main said too many coal operators still “don’t get it” and are continuing to cut costs by ignoring safety. That’s why MSHA plans to continue targeting mines with a history of repeated violations for additional inspections.
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Not far enough
For the past three sessions of the Kentucky General Assembly, bills that would raise the minimum dropout age from 16 to 18 have been approved by the Kentucky House of Representatives by wide bipartisan margins only to die in the Senate without even a vote.
Now the Senate Education Committee has unanimously approved a dropout bill hailed as an alternative to the House bill, but it does not go nearly far enough. It is a halfway measure that would have only a limited effect on preventing teenagers from quitting high school before graduation and virtually assuring themselves of lives on the lowest rungs of the economic ladder.
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Not their job
The local government committee of the Kentucky House of Representatives has wisely killed a bill — dubbed “Cooper’s Law” — that would have allowed the family of the Lexington toddler with cerebral palsy to have a playhouse on their property despite a deed restriction that apparently prohibits such structures.
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Keeping FADE
Despite an increase in cost to the department, Carter County Sheriff Casey Brammell told the Carter County Fiscal Court that his department will continue to be active in the FIVCO Area Development Drug Enforcement (FADE) Task Force — at least for now.
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Needed changes
The soaring enrollment that Kentucky’s community and technical colleges have experienced in recent years could come to a sudden end — or at least be slowed — as about 5,500 students in the statewide system that includes Ashalnd Community and Technical College are expected to lose their financial aid under new rules being implemented by the federal government.
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Released early
While it is disappointing that 75 of the 952 prisoners granted early release in January have violated the terms of their releases, the good news is that none of the former inmates have been charged with new felonies. That’s an early, but positive, indication that the nonviolent felons released before their sentences were up have been carefully selected and are among those least likely to return to a life of crime.
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Obese children
Almost a decade after former Gov. Ernie Fletcher called childhood obesity an “epidemic” in Kentucky, a majority of Kentucky adults still think that there are too many overweight children in the state and they place the bulk of the blame squarely on the shoulders of their parents.
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Charles Chattin
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