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.
