Economists recommend directions for tax reform

This from Tom Eblen in H-L:

This is the time each year when Kentucky lawmakers usually engage in their own version of insanity: doing the same things over and over and expecting different results.

The situation has gotten so crazy, though, that this year could be different.

Kentucky's tax system has been out of sync with the economy for more than a decade, creating ever-larger deficits despite frequent budget-cutting and quick-fix tax increases.

The General Assembly is finally considering comprehensive tax reform, and lawmakers got some good advice Wednesday at a standing-room-only symposium organized by the University of Kentucky's Martin School of Public Policy and State Treasurer Todd Hollenbach.

In presentations by six economists and other experts, it quickly became clear that the tax system's inability to reliably provide enough revenue to meet Kentucky's needs isn't the only problem.

Compared with surrounding states, most of the economists agreed, Kentucky taxes property and the sales of goods and services too little and taxes income too much. That hurts economic growth because it puts Kentucky at a competitive disadvantage for attracting human capital and the businesses that employ it.

"We are discouraging younger, more-educated workers from moving to the state," said UK economist Kenneth Troske.

Kentucky's low property taxes are a legacy of rural heritage, political pressure from property owners and 1979 legislation that capped property tax increases at 4 percent a year, even though property values have often risen much more than that.

"We have a great tax code for a manufacturing economy and an agrarian economy and a poor tax code for a knowledge economy," said Joseph Reagan, president of Greater Louisville Inc.

Kentucky's 6 percent sales tax applies to goods but few services...