Frankfort, KY–Legislators often name bills in honor of those who served as inspiration for the proposed changes, but for some reason, House and Senate leaders overlooked a truly golden opportunity when they rushed major tax changes through the General Assembly last month.
To correct that oversight, I have come up with what I think is the perfect name: The Law of Unintended Consequences.
It’s a fitting title, because we really can’t project what is going to happen when these changes officially go on the books in July. We know quite well what we are giving away – the richest five percent and large corporations will get guaranteed cuts worth hundreds of millions dollars every year – but budget officials were still crunching numbers weeks after the legislature left the Capitol, trying to figure out what the final cost of this law would be.
We’ve been told it will bring in about $200 million extra a year to the state, but no one will know for sure until we actually run this experiment. The very real worry is that today’s fuzzy projections will be tomorrow’s budget shortfalls, which would be on top of numerous cuts already made over the past decade. In other words, the state is about to walk into the fog on a tightrope without much of a safety net.
What compounds the uncertainty is the way these tax changes were enacted. We all would have been better served had we given the public time to make its concerns known, because we needed that insight. Instead, we got a bill written in secret that was passed by the General Assembly on the same day it was introduced, without a second of outside testimony. Even if you think everything in this plan is wonderful, that is not how major legislation should be enacted, especially when it affects our pocketbooks.
Not surprisingly, mistakes were made along the way. The original tax bill inadvertently cut a popular credit used by such large companies as Toyota and Ford, and cold feet among House leaders just hours after they passed the tax bill led them to offer another poorly worded amendment that would have wiped away the entire exemption retirees get on their state income taxes. Had that passed, most senior citizens would suddenly have to pay thousands of dollars more to the state, but the Senate thankfully did not take up that proposal.
Governor Bevin vetoed the original tax bill, but House and Senate Republicans chose to ignore a governor of their own party and the pleas of every single Democratic legislator. The veto override – to raise taxes, remember – actually drew six more House Republican votes than when the bill first passed, perhaps the most telling sign yet of just how unpopular the governor is.
The day after that override, most of those same legislators then voted for a “fix” that gave away tens of millions of dollars more to the very same interests that had benefited from the law given final approval just 24 hours earlier.
The biggest unknown looking ahead is the impact of adding the six percent sales tax to nearly 20 different services. It is difficult to predict how people will respond when it costs more to do our dry-cleaning, fix our vehicles, install heating and air equipment in our homes and businesses and take care of our household pets. Will people golf and bowl less or decide not to visit the gym as much? Will an underground economy pop up, where after-hours or cash-only payments circumvent these new taxes? Taking money out of the pockets of the middle and modest income classes is not the way to grow our economy.
We also don’t know how retirees will respond to the 25 percent cut to their income-tax exemption; it may push some to move and others to mark off the commonwealth as the place to enjoy their golden years.
We have a good idea of the financial impact of raising the cigarette tax by 50 cents, but that is a declining source of revenue and it could make Kentucky a less popular place to shop for those in surrounding states who come here because of a lower sales tax.
For years now, virtually every elected state official has said tax modernization is something Kentucky must have to be competitive. What we’re getting, though, is a tax shift that will cost most of us more without putting the commonwealth on a path that better aligns our tax structure with our economy.
The current gap between them will grow even wider in the years ahead, making it tougher to fund our schools and cover the other costs the state has to pay. At the same time, this year’s tax law will dampen any appetite in the future to make changes that are right for all Kentuckians, not just a lucky few.
Come to think of it, that just might be the intended consequence the majority had in mind all along.
Representative Keene served as Chairman of the Licensing, & Occupations Regulations Committee in the House of Representatives prior to being elected to House Democratic Caucus Chairman in 2017. A businessman, Keene currently serves on the House Licensing, Occupations & Administrative Banking & Insurance, and Natural Resources & Energy Committees.
Representative Dennis Keene has served the citizens of the 67th District (Newport, Bellevue, Dayton, Silver Grove, Melbourne, Highland Heights, Southgate, and Wilder) in Campbell County since 2005. Keene is an economic development advisor for EGC Construction. For more information, visit: www.DennisKeene.com.