Despite positive elements, plan fails to improve tax competitiveness
Washington, D.C. (Mar. 10, 2014)—On February 4, Governor Steve Beshear (D) of Kentucky proposed a tax reform plan which draws from recommendations made by a 2012 tax reform commission. The proposal contains some positive elements, but according to a new report from the nonpartisan Tax Foundation, the overall plan contains problematic components and neglects basic reforms to modernize the state’s tax code.
Key findings include:
The plan includes a significant reduction of Kentucky’s income tax rates accompanied with some base broadening but does not include key reforms such as regular inflation adjustments.
Kentucky’s combined state-local income tax rates would remain among the higher tax rates on middle-income households in the nation.
Proposed changes to the corporate tax continue the erosion of the state’s corporate income tax base through narrow tax incentives, while offering only a very limited rate cut.
Sales tax changes include an attempt at broadening the base to include services, but unfortunately includes many business-to-business services, which can lead to tax pyramiding and harm the state’s business tax climate.
The proposed reduction in alcohol excise taxes is dwarfed by proposed increases in tobacco taxes, leading to an increased reliance on a narrow excise tax base.
Positive proposals to phase out inventory and some tangible personal property taxes would make Kentucky’s property tax code somewhat more competitive.
“As it stands, Governor Beshear’s plan doesn’t meaningfully make Kentucky’s tax code any more competitive, but instead just shuffles around a bit who bears the increasing cost of state government,” said Tax Foundation economist Lyman Stone.
The drastic increases in cigarette taxes and new taxes on business inputs undermine any positive effects of the modest improvements in income and property taxes this tax plan may have yielded.
The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.