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KY’s Economic Growth Signals Tax Reform?


Friday, August 12, 2011   

BEREA, Ky. - Enthusiasm over the state's projected $192 million surplus this fiscal year and future modest growth predictions needs to be tempered with a broader reality check, according to the leader of a state research organization.

Even though the numbers put Kentucky back to pre-recession revenue levels many states would envy, says Jason Bailey, director of the Kentucky Center for Economic Policy, further figure-crunching tells another story.

"What is continuing, unfortunately, (and) is expected to continue, is the decline in revenue as a share of the economy, which is a measure of how much we have relative to our needs."

Ideas to cut or eliminate corporate and personal income taxes would be the wrong approach at the wrong time, Bailey says, because those taxes have bounced back more quickly than have sales taxes nationwide.

"What we need to do is broaden the base of our tax system, which means that the sales tax and the income tax both have too many exemptions and exclusions. These need to be taken out so it's more fairly and broadly applied."

On the jobs front, Bailey says, the Bluegrass state has gained about a third of the jobs lost from the recession, adding only about 1,500 a month. He believes the stalled economy needs a government boost to help turn the corner on job creation.

"We can invest in infrastructure. The U.S. needs a significant improvement in a wide range of infrastructure that can create jobs now. We can extend unemployment benefits. We can provide assistance to the states that have higher Medicaid enrollment."

Part of Kentucky's economic fate will also be determined, adds Bailey, by any further cuts in federal spending that pare down services and programs many Kentuckians depend on. That may be likely, he says, as part of the budget-cutting plan in the new debt-ceiling agreement.

The answer, Bailey says, lies with reforming the state's tax code. The state's high unemployment rate creates a greater need for public services, Bailey says, which puts pressure on revenue. Those forces, he adds, will make for a tight budget for lawmakers to deal with come January.

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