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"Blue Ribbon Commission" looks at the Kentucky tax code

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September 26, 2012


By George Sousouris

Lexington, KENTUCKY: An outdated tax code rife with exemptions is undermining Kentucky's long term fiscal health, according to a new study conducted by Governor Steve Beshear's (D) so-called Blue Ribbon Commission on Tax Reform. The report, published by economists at the University of Kentucky and the University of Tennessee, forecasts a billion dollar annual deficit by 2020 if the state refuses to make necessary changes.[1]

The commission looked closely at the state's hundreds of tax exemptions, which in totality, create a major revenue problem, as well as an inequitable tax distribution. William Fox, one of the report's authors, argued that the state needs to broaden the base of taxpayers, which will in turn allow for lower overall rates that will improve Kentucky's economic competitiveness releative to neighboring states. One of the more controversial measured proposed by the group is a large expansion of the sales tax to include many more services, as well as food. However, the authors also propose an across the board income tax cut or flat tax while also removing all or most of the tax deductions in the code.[2][1]

The prospect of a major overhaul of the tax code has already got many trade groups on edge and prepared to fight to keep their exemptions. During preliminary hearings in the legislature this summer, farmers, realtors, manufacturers and restaurant owners lined up their lobbyists in Frankfort arguing that the tax breaks were necessary to their respective industries' future. Democrat Rick Rand acknowledged how difficult this task will be, saying "I doubt you can close them without lowering rates substantially or maybe going in and lowering income tax rates...Organizations or interest groups had the muscle to get those exemptions in the first place, so any of them would be difficult to close."[2]

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