When you speed past the sign that says “Warning: Bridge Out,” you shouldn’t be surprised when you start to plunge.
Kentucky cruised by numerous warnings on the journey to its biggest financial crisis ever. Perhaps the most prominent warning sign came in the form of the oft-cited “Fox Report” (Report to the Sub-Committee on Tax Policy Issues) that was delivered to lawmakers by economic expert Dr. William Fox in 2002. The report made clear that our tax system was outdated, imbalanced and incapable of sustaining our state into the future.
As bad as the situation sounded back then, things are much worse now. Just as the Fox report predicted, Kentucky is now facing the fallout of a tax system completely unable to support the progress Kentuckians desperately want. But it’s not too late to hit the brakes and chart a smarter course. There’s no reason — other than political cowardice — that we can’t steer toward a tax code that includes the four main characteristics of a healthy, balanced system:
Fairness. The tax code should promote justice, with every Kentuckian paying their fair share, including the wealthiest.
Adequacy. The revenue stream should be stable enough to support schools, social services, prisons, law enforcement, environmental protection and other programs and services people depend on.
Elasticity. Revenue should grow as the economy changes. If a certain section of our economy is expanding, as our service-based sector is, tax revenues should reflect that.
Simplicity. The system shouldn’t be too complicated to understand. Taxes should be as low possible — with everyone paying their fair share — and the tax base should be broad.
These well-known features of a healthy tax system have been called for in Kentucky since long before the Fox report, at least back to the days of Gov. John Y. Brown’s administration (1979 to 1983.) No one can say we didn’t know how to avoid our current fiscal disaster, which has been compounded by the nation’s economic recession. Yet political leaders, year after year, decade after decade, simply failed to fix the problem.
Since 2000, Kentucky has spent $3.5 billion more from the General Fund than we’ve taken in. We’ve raided every fund and pot of money possible to apply Band-Aids to the gaping holes in our General Fund. Last year the legislature further put off our day of reckoning by using federal stimulus payout for recurring expenses. This sick system could not hold together indefinitely. It is now collapsing.
We haven’t seen meaningful change in Kentucky’s income taxes since the 1950s — this despite the tax burden falling disproportionately on the middle class and working poor.
Kentucky’s wealthiest citizens pay only 6.1 percent of their income in state and local taxes after federal offset deductions. Meanwhile, Kentuckians who earn between $15,000 and $47,000 pay nearly 11 percent of their income in state and local taxes, while those earning between $47,000 and $77,000 pay nearly 10 percent. A state earned income tax credit for low-wage earners would promote fairness by lifting the tax burden from some citizens, but we also need modest adjustments to make sure the ultra-wealthy pay their fair share.
Gov. Steve Beshear and legislators have worked hard to manage the dire situation we’re in. But skillful management is no substitute for the leadership. Slashing some programs while protecting others might slightly reduce the pain of our current crisis. But shouldn’t leaders strive to point the way to a more firm foundation on which to build the state’s future?
We can’t accept the status quo without also accepting a poverty rate for children that has gone from 20 to 25 percent in eight years, annual, double-digit tuition increases that are putting a higher education — the best path to financial stability — further out of reach for many Kentuckians, a per capita income of $34,339 than ranks among the bottom five nationally, and the nation’s most deplorable record of deaths resulting from child abuse and neglect. As an under-educated, unhealthy, poor state, we are not progressing. We are regressing.
Merely managing our way through our current fiscal crisis ensures that we remain in a state of crisis for future budget cycles. After years of ignored warning signs, we can’t afford to go any further without changing course. We need bold reforms to our tax system and a citizenry supportive of efforts to bring stability to our state. Above all, we need strong, inspired leaders that focus less on their own re-election and more on Kentucky’s long-term success.
State Rep. Jim Wayne, D-Louisville, is the House member for the 35th District, which covers part of Jefferson County. He is vice chairman of the State Government Committee and a member of the Appropriations and Revenue and Local Government committees.