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KY Economic Think Tank Says Reform, Don't Scratch Corporate Income Taxes

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June 27, 2011

BEREA, Ky. - An economic policy group in Kentucky refutes key state legislators' belief that the state would be better off eliminating the corporate income tax. A new report by the Kentucky Center for Economic Policy (KCEP) contends that such a move would harm the state's ability to make investments that create jobs.

Jason Bailey, director of the KCEP, says it's a bargain for businesses to operate in Kentucky, as the state corporate income tax makes up less than one-quarter of one percent of the cost of doing business.

"Substantial research shows that eliminating or cutting them has little or no impact on business investment decisions, on location decisions. In part, that's because it's just a very small part of the cost of doing business."

Kentucky lawmakers from both sides of the aisle have embraced the idea of doing away with the corporate income tax. Proponents say it would spur job creation because businesses would choose to locate or expand in Kentucky.

But Bailey says the evidence casts serious doubt on that claim.

"Eliminating the tax is not going to create a job bonanza in Kentucky. It is going to take money away from the investments that are proven to create jobs, build a strong economy, improve our quality of life."

Those investments, says Bailey, are in such areas as education and infrastructure. He adds that, as a matter of fairness, eliminating the 6 percent corporate income tax would mean major businesses would avoid responsibility for supporting public services that also benefit them.

"What any expert in tax policy will tell you is that you need to have a broad tax base; so, lots of different types of taxes, and corporate taxes are one of those."

In that line, Bailey offers further tax suggestions.

"We need to modernize our sales tax by expanding it to services. We need to make an income tax that's more progressive, in part, by putting in place a state earned income tax credit by looking at higher rates on higher income people."

Bailey says revenue from the 75-year-old corporate income tax has been declining in recent years, in part because of loopholes that other states have closed, and more lenient reporting methods that don't prevent large, multi-state businesses from creating tax shelters.

He also says closer scrutiny of tax breaks Kentucky gives businesses is in order. State lawmakers passed a measure last winter to study whether those incentive programs are paying off.

The report, "Corporate Taxes Important to Meeting Kentucky's Needs" can be found at: www.kypolicy.org

Renee Shaw, Public News Service - KY