“Tax reform:” Liberal code for raising taxes

Each year when the Kentucky General Assembly goes into session, someone will float the idea that Kentucky’s taxation system needs to be reformed. They will point to amount of tax revenue that the state is not capturing and pulling into its coffers, which would be spent on who knows what kind of new government programs.

Another term frequently used in place of “reform” is “modernization.” The expressed logic behind that term is that the state’s economy has evolved from one based on manufacturing and purchasing to one of providing services, and thus the tax system needs to evolve as well.

While “modernization” of something that’s been around awhile sounds like a good thing, and “reform” when it comes to government is the goal of most conservatives, the reality is that those terms, when applied to taxation, are really code for “tax increases.”

With the new administration of Gov. Matt Bevin facing budget issues, the calls for tax reform are possibly louder now than they’ve been at any time during the last few legislative sessions. Bevin is looking to cut state government spending, which isn’t going over well with those who prefer a more expanded role for the bureaucracy.

Some tax reform proposals issued in the past have been “revenue neutral” – that is to say, the changes would shift tax burdens from one group to another without an overall increase in money to the General Fund. That would basically end up being a tax break for some groups and a tax increase for others. Such an effort would accomplish nothing, other than to mollify some of those who want to soak the rich.

The most frequently mentioned reform proposal being floated this year, however, would result in both an increase in taxes on certain individuals and an increase in revenue for the government. While some tax rates might be lowered in the process, the overall effect would be people paying more taxes and on things that are currently not taxed.

Presently, Kentucky doesn’t tax services. You don’t pay sales taxes on haircuts, auto repairs, pet grooming, dry cleaning or a number of other acts. You pay taxes on the parts used to fix your car, but you don’t pay a tax on the labor to install those parts. Most every proposal for reform or modernization recommends extending Kentucky’s 6 percent sales tax to certain services.

There’s a danger in such a proposal. Proprietors and employees of barber shops, beauty shops, auto repair garages and other such service-oriented businesses already pay taxes, whether it’s as an employee or as a business owner/proprietor. Could taxing those services send many of those businesses underground into a cash-only status? What if the owner of a licensed beauty parlor closes up shop, starts doing hair in her home, and taking untaxed cash as payment? There’s always an unintended consequence anytime the government makes a money grab.

Another frequently-mentioned reform is rescinding a number of tax breaks given to certain industries or individual businesses. Liberals seem to believe that a tax break involves a payment from the treasury to the recipient of the break, rather than them getting to keep more of their own money instead of having to fork it over to the government. It seems to be part of a pattern among those who believe that your earnings belong to the government first, and you get to keep whatever the government lets you keep after it takes what it want.

No one ever seems to promote what would be true tax reform. What’s needed are policy changes that would promote economic activity and generate additional commerce that would produce an increased flow of tax revenue; maybe even to the point where overall tax rates can be reduced because the economy is booming and revenues will still go up. We need policies that will increase the number of available jobs and remove restrictions that hamper the ability of businesses to offer products and services.

How we get there may be a topic for debate, but the reality is that such changes would do far more good than the tax increases disguised as reforms proposed by liberal Frankfort interests and promoted by the Lexington Herald-Leader – which, to borrow a quote from the late Citizen Voice & Times and Clay City Times publisher Guy Hatfield about a certain former school superintendent, never met a tax increase it didn’t like.