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Kentucky Panel's Tax Reforms Would Raise $700M

BRADENTON, Fla. — The Blue Ribbon Commission on Tax Reform in Kentucky is recommending 54 changes to the state tax code that would generate about $659 million of new revenue annually if fully implemented.

The panel was appointed more than a year ago by Gov. Steve Beshear, and its final report was released on Monday.

Part of the impetus for the tax reform, which may be considered by the Legislature next year, is that tax revenue has failed to keep pace with the economy and the state is dealing with a structural deficit that could reach $1 billion by 2020, according to consultants from the University of Kentucky and the University of Tennessee who advised the task force.

"Addressing this structural deficit promises to become more difficult in the future since the underlying economic, demographic, and political trends reducing elasticity are continuing and show no signs of abating," consultants said.

A number of financial factors also are likely to intensify state budget pressures in the future, such as Kentucky's $30 billion unfunded pension obligation and long-term fiscal problems at the federal level, they said.

Beshear has said that he may recommend that lawmakers consider tax and pension reform at the same time.

"I will review [the tax reform] report and will discuss the findings with legislators as we seek ways to make sure our state has the resources it needs to meet the needs of our people," Beshear said.

The task force recommended reducing the individual income tax rate structure, broadening sales tax collections, imposing a gross receipts tax of 1% on utilities, and increasing collections of out-of-state and Internet sales.

The recommendations also included increasing the cigarette tax to $1 from 60 cents, stabilizing fuel tax revenues to support highway funding by raising the average wholesale price, and refusing to renew the licenses and vehicle registrations of taxpayers who refuse to pay state taxes after exhausting all appeals.

The task force also included other measures designed to increase new business and expand the economy.

"These proposals will also modernize our tax structure, making it fairer for families and businesses," said Lt. Gov. Jerry Abramson, who chaired the task force. "The changes would position Kentucky to create more jobs, further grow our economy, and fund many of the services the commission heard were needed all across the Commonwealth."

The panel recommended a tax deduction for 529 savings plan contributions, lowering the top corporate tax rate to 5.8% from 6%, establishing an angel investor tax credit program for small businesses, freezing the state property tax rate at 12 cents per $100 of value, and amending the constitution to allow a general sales tax to be imposed at the local government level.

The annual legislative session begins Jan. 8 and runs through March 26.

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