Kentucky Offers More Than 250 Different Tax Breaks
LOUISIVLLE, Ky. -- Kentuckians can take advantage of a multitude of tax breaks, whether for parsonages and public assistance benefits, prescription drugs or personal airplanes.
In all, the state tax code offers 253 tax breaks that add up to more than $12 billion in annual tax relief, according to the Governor's Office for Economic Analysis.
That's more than all the revenue that goes to the state's general and road fund funds combined.
The Courier-Journal reports that critics say all those tax breaks are slowly bleeding the state government and its agencies dry at a time when funding for education and programs that help the neediest Kentucky residents is being cut.
"The major problem, at least in my mind is we've picked away at that tax structure with exemptions that individually seemed fairly harmless at the time, but the totality of the exemptions and special provisions has impacted the growth potential and equity of the system," Merl Hackbart, a University of Kentucky finance professor and former state budget director, told the newspaper.
With that in mind, Gov. Steve Beshear's Blue Ribbon Commission on Tax Reform is examining the state's tax breaks as part of its job of recommending ways to make the tax code more equitable and better able to generate the revenue state government needs to pay its bills.
"It's obviously something we're looking at," said commission member Pat Mulloy, chief executive officer of Elmcroft Senior Living and a former state finance secretary. "If Kentucky, or any state, doesn't pause to do a comprehensive tax reform ... over time you get these leakages."
But any attempt to curtail the state's wealth of tax breaks will face fierce opposition from lobbyists, who argue that those breaks do far more good than harm by keeping money in the private economy, where it is best spent.
During this summer's hearings of the tax reform commission, farmers, real estate agents, restaurant owners, manufacturers and others have pleaded to keep the breaks they have or asked for even more.
Kentucky lawmakers' love affair with tax breaks has a long history.
In 1995, for instance, after big gains by conservative Republicans in the national and state elections, tax-cutting fever ran high in Frankfort.
Although he had just appointed a commission to recommend a thoughtful, comprehensive reform of the state tax code, Democratic Gov. Brereton Jones caught the fever.
The economy was starting to boom, and politicians figured the short-term budget outlook could handle some cuts, particularly if they were phased in.
So Jones called a special session, and lawmakers quickly and overwhelmingly exempted private pensions from the state income tax, an action that is estimated to now cost $465 million in state revenue every year.
In 1998, lawmakers significantly lowered a cap on the amount airlines pay in sales tax for jet fuel. The move was said to be key to Comair Inc.'s decision to spend $25 million to expand its operations at the Cincinnati-Northern Kentucky International Airport in Hebron, Ky.
Comair, now owned by Delta Air Lines, recently announced it will cease operations this fall, yet the tax break remains in effect, costing the state $24.9 million.
In 2000, legislators approved a reduction in the coal severance tax for coal mined from thin seams, a revenue reduction of $2.4 million last year.
Closing any of those tax breaks, even small ones, will not be easy, legislators say.
"I doubt you can close them without lowering rates substantially or maybe going in and lowering income tax rates," said Rep. Rick Rand, the Bedford Democrat who chairs the House budget committee.