What Is Tax Reform And Why Does Gov. Bevin Want It?
Jim Carroll started working for Kentucky’s state parks system in 1978 making $780 a month.
“So I knew the pay wasn’t good but I knew that it was a place where you could advance over time," Carroll said. "It was stable, and retirement was part of that.”
Carroll later worked in the tourism cabinet and retired in 2009. Since then, he’s organized a group of concerned state pensioners called Kentucky Government Retirees.
Carroll draws a monthly pension from the retirement system for most of Kentucky’s state workers, Kentucky Retirement Systems. Depending how you measure it, KRS has one of the lowest funding levels in the nation.
“It would have never occurred to me to be concerned about it until the last few years,” Carroll said.
Over the course of nearly two decades, the state didn’t put enough money into its pension funds and now the state is short about $35 billion. The bottom line is Kentucky only has about 17 percent of the money it needs to write checks to current retirees and those who retire in the future.
Now the state needs to come up with more money to put into the pension systems — either by cutting programs or raising more money from taxes.
Gov. Matt Bevin already cut spending across most of state government during last year’s budget session and now he wants to come up with a way for the state to get more revenue — the often-discussed but never fulfilled “tax reform.”
“There are people who support me and have supported me who won’t like this," Bevin warned during his State of the Commonwealth address earlier this year.
"This is not going to be a tax-neutral tax plan," he said. "It’s not, we can’t afford for it to be. That’s a straight-up fact."
'Leaving money on the table'
During that speech, Bevin called for reviewing about 300 tax breaks for possible elimination so the state can capture more money through taxes. He said he wants the state legislature to reconvene later this year to overhaul Kentucky’s tax code and come up with solutions for the state’s ailing pension systems.
It's unclear if that special session will happen and details are still fuzzy as to what the governor wants and what the legislature will go along with.
Jason Bailey, with the progressive-leaning Kentucky Center for Economic Policy, said the state is "leaving money on the table" by allowing so many tax breaks -- Kentucky exempts more money through tax breaks than it collects through tax revenue.
"The money would be a lot better spent in making college more affordable," Bailey said. "We’ve only cut and we haven’t generated any new revenue and there comes a point where you can’t cut anymore.”
But some tax exemptions are widely popular — for example, the state doesn’t collect sales taxes on groceries or prescription drugs.
Bevin has hinted he wants a major overhaul of the state’s tax code by shifting the state "from production-based tax economy to a consumption-based tax-economy.”
That could mean the state not relying as much on taxing people’s incomes.
A handful of states like Tennessee, Texas and Washington don’t have income taxes — they rely on other sources of revenue like sales or property taxes.
And Bailey worries that higher sales taxes would hurt poor people because they spend most of the incomes they earn — and all their spending would be taxed at a higher rate.
“Those people at the top don’t spend all of their income, so not all of their income is subject to sales tax,” Bailey said.
'We need more revenue'
Jim Waters is president of the Bluegrass Institute, a free-market think-tank. He says a shift away from an income tax would encourage people to save and invest more. Waters says the income tax "punishes productivity and growth."
"So the more an individual produces, the more they’re punished,” he said.
Waters also argues the premise of tax reform shouldn’t be to generate more revenue, saying the state already has enough money to maintain necessary programs.
“We think it’s important to have tax reform, not so the government can have more money to spend on wasteful programs, but that so we encourage investment, savings and productivity,” he said.
Jim Carroll, the former state worker who runs Kentucky Government Retirees, says he doesn’t want to see as many budget cuts -- he wants the state to find more money.
“We need more revenue," Carroll said. "How we get there is another matter, I don’t pretend to know that. It seems to me that we need more revenue to meet our critical needs.”
It’s still unclear if the special session for tax reform will even happen. Many Republicans have been uneasy by the idea of increasing tax revenue.
But Bevin’s administration is apparently moving forward — earlier this month it put out a request for tax law experts to come up with a report about possible taxation options.