Ky. lawmakers say push for tax overhaul gaining steam since governor’s speech, budget proposal

Tax overhaul talk gains steam after gov.’s speech

FRANKFORT, Ky. — Gov. Steve Beshear’s inclusion of $780 million in assumed revenue from video slot machines in his budget proposal has added fuel to talk of overhauling Kentucky’s tax system as some lawmakers dismiss expanded gaming as a longshot.

Some Democrats and Republicans are trying to craft a compromise revision of the state tax code, and some said Thursday that prospects for a tax overhaul are brightened by the state’s financial woes and Beshear’s presentation of a budget that factors in gaming revenues.

“Everything is timing in politics, and this may be the time because we’re in such a dire strait,” Rep. Jim Wayne, D-Louisville, said in an interview.

The state’s general fund has been reeling from the deep recession, leading to a projected $1.5 billion shortfall over the next two-year budget cycle. That’s atop $1 billion that has been cut from the current budget.

House Speaker Greg Stumbo, D-Prestonsburg, said Thursday he has detected heightened interest in a possible tax overhaul since Beshear outlined his budget proposals earlier this week in a speech to a joint session of the House and Senate.

“If the conversation from the members is any indication over the past 24 hours, I’d say, yes, there is a lot more interest,” he said.

Stumbo, who directed House lawmakers to seek a bipartisan plan, said there has been talk of closing some tax loopholes and spreading the sales tax to certain services, along with possibly lowering the sales tax rate and tax relief for low- and middle-income earners.

“We are not going to put additional taxes on the general public,” he said. “We’re not going to tax families that are out there struggling. … What we’re talking about is tax fairness — people who aren’t paying their fair share now.”

Rep. Bill Farmer, R-Lexington, said he thinks it would be “poor policy” for the legislature to write a state budget and revamp the tax code at the same time.

“We could come up with a great tax idea and it might generate 50 percent of the revenue we need or 200 percent of the revenue we need,” he said. “What we don’t want to do is short the state what it needs, but we also don’t want to raise the tax burden.”

Farmer, a participant along with Wayne in seeking a bipartisan plan to update the tax code, said it would be more practical for lawmakers to pass a budget in the current 60-day session, then consider a tax overhaul in a special session or in next year’s regular session.

Beshear’s budget proposal received a generally chilly response from House Democrats during a closed-door meeting Wednesday, a day after the governor’s speech, some said.

The main objection was the governor’s inclusion of the $780 million in assumed revenue from slot machines — a pile of money that many think will not materialize.

“Everybody kind of shrugged their shoulders and asked why he did this,” Wayne said.

Beshear wants lawmakers to allow racetracks to install video slot machines. Such a measure passed the House last year but died in the Senate.

Rep. Rick Rand, chairman of the House Appropriations and Revenue Committee, said he was disappointed that Beshear’s budget factored in expanded gaming revenues. He said many House members view passage of a gaming bill as “very difficult.”

As lawmakers put their own imprint on the budget, Rand said, “we’re going to have to start assuming that that $780 million is not going to be there.”

The two-year state spending plan presented by Beshear does not include any tax increases or any across-the-board layoffs of state workers. Beshear said his plan protects his core priorities of education, health care for the poor, public safety and economic development.

Beshear spokeswoman Kerri Richardson said Thursday that minus new, ongoing revenue sources such as from expanded gaming, “the other options for balancing the budget are bleak.”

Those options, she said, include “significantly raising taxes, making draconian cuts to state services or wishing and hoping for another federal stimulus package.”

Beshear told lawmakers in his budget speech this week that he was “open” to talks about modernizing the state’s tax system.

“But we are not in this financial crisis because of our tax structure,” he said, adding that “changing our tax structure isn’t going to get us out of this financial crisis.”