Kentuckians to Pay $690 Million More in Taxes Each Year

UPDATE 12/7/2012

 The Kentucky Blue Ribbon Commission on Tax Reform met for the last time  yesterday, and will now prepare and submit final recommendations to Governor Beshear by December 15th.  The proposed taxes are expected to raise almost $700 million annually for the commonwealth.

According to mycn2.com, some of the final recommendations included:

- Taxing retirees’ public pensions starting after $30,000 instead of the $15,000 level, proposed earlier by the commission. The state currently taxes retiree pensions just above $41,000 dollars.

- $290 million is anticipated from "taxes on cigarettes, closing some corporate loopholes and applying the state sales tax to certain services and utility payments."

MyCN2.com reported that "Kentucky currently taxes income on six brackets at rates ranging from 2 to 6 percent. Everyone in the state earning more than $8,000 is taxed at a 5.8 percent flat rate and those making more than $75,000 rare taxed at a 6 percent rate."

The commission also voted for an Earned Income Tax Credit which would provide the lowest income residents with extra cash, according to MyCN2.com.  

Read the full report at: http://mycn2.com/politics/opening-bid-from-tax-commission-690-million-will-it-be-enough-or-too-much-for-lawmakers

Kentucky - 18th Highest Gasoline Tax in U.S.

Based on the latest data from the American Petroleum Institute, Kentucky's July 1, 2012 tax increase, to 48.3 cents per gallon, made the state's gasoline the 18th most heavily taxed in the nation.

As a state, Kentucky is one of the largest consumers of gasoline in the nation. Residents of the commonwealth purchase nearly 51,267,000 million barrels of gasoline per year, or the equivalent of almost 1 billion gallons.

That is good news for Frankfort because the recent tax hike on gasoline should earn state government approximately 500 million dollars in revenues.

How does the tax affect the commonwealth consumer? Most people drive nearly 15,000 miles per year and get approximately 20 miles per gallon, which equals 750 gallons of gasoline per year.

To determine annual gasoline cost, multiply the 750 gallons of gas by the price per gallon, for example $3.59, and the total fuel bill for the year equals $2,692.50.

To determine the state excise tax amount, multiply the 750 gallons by  48.3 cents per gallon (to get actual dollar cost, use .483). The result is $362.25. That equals the state excise tax paid for the year, which is included in the total fuel bill.

Of course, there is also the 18.4 cents federal excise tax included in the price of each gallon of gas. The combined federal and state excise taxes are currently 66.7 cents per gallon in Kentucky, which means the total state and federal taxes on 750 gallons of gasoline is $500.25 annually.

Kentucky and 10 other States in Death Spiral?

Forbes Magazine named Kentucky, along with 10 others, as "states with business climates so bad they're in a death spiral and are danger spots for investors."

Of the 11 states with the worst business climates, New Mexico topped the list, followed by Mississippi, California, Alabama, Maine, New York, South Carolina, Kentucky, Illinois, Hawaii, and Ohio.

Forbes Magazine based the findings on a number of factors including:

- the number of private sector employees in a state;

- the combined number of state, county, and city employees currently working or retired;

- the number of state Medicaid recipients;

- a 1 person value for each $100,000 dollars of unfunded state pension costs;

- a state's credit-worthiness based on its amount of debts;

- an uncompetitive business climate;

- weak home prices;

- and bad trends in employment. 

According to the Forbes article, the 11 states listed above "can look forward to a rising tax burden, deteriorating state finances and an exodus of employers." This is not a pretty picture for the future of Kentucky, nor is it a new revelation for the folks in Frankfort.

It is not new information because a similar report on Economic Freedom was written in October 2008,  titled "Index points finger at Kentucky's economic failure."

The report pointed out that "Nearly 80 percent of American states have more economic freedom than Kentucky — a fact that could prove to hamper the commonwealth’s prospects for economic growth." Overall, Kentucky had the 9th most "obese government", and was the 8th worst state in the country in the "welfare spending category."

In the first Economic Freedom Index report, issued in 1999, Kentucky ranked 29th on the economic freedom index. But by 2004 Kentucky dropped to 39th, and by 2008 fell to 40th. And where is Kentucky today? Based on the most recent report which came out on November 28, 2012, Kentucky has now dropped to 46th, to capture the 5th worst rating in the nation.


Frankfort has known the primary problem in Kentucky was not a fat government, but an OBESE GOVERNMENT. They created the overweight behemoth and continue to let it run wild, feeding at a trough with an endless flow of  Kentuckians' tax dollars.

But all the blame does not lie solely at the feet of government. Because in the end, it was "we the people" who elected them, and who then sat quietly by, and did nothing as the state eroded economically.

As Kentuckians, we can no longer afford to sit on the sidelines. It is time for us to take action together, not only to improve our government, but also our state; for ourselves, but more importantly, for our children and grandchildren. 

Tax Reforms May Impact Every Kentuckian

The Louisville Courier-Journal and Cincinnati.com reported that the Kentucky Blue Ribbon Commission on Tax Reform is working on "recommendations that could touch the lives of every Kentucky taxpayer — from changing the state income and sales tax rates to increasing the cigarette tax." 

Some of the most significant proposals included:

- allowing cities to have a local option sales tax;

- taxing retiree pensions starting at $15,000 dollars;

- taxing Social Security benefits — now exempt from the state income tax;

- and eliminating 75 percent of itemized deductions including home mortgage interest and charitable contributions.

AARP Kentucky claimed recommendations to tax Social Security benefits and retiree pensions are “ill-timed and will unfairly burden today’s retirees, who have no time to pivot their retirement strategy.”

Taxing retirement pensions will most likely affect all current and future military, federal, state, county, and city retirees, Individual Retirement Accounts, as well as participants in U.S. Railroad pensions plans. 

Governor Beshear requested the final report by December 15. The proposals will then be discussed with legislative leaders and forwarded to the General Assembly, tasked to implement the changes to state tax laws.

If you would like to contact Governor Beshear about the proposed changes above, you can go to the following link to take action. 

http://koag2012.blogspot.com/2012/11/kentucky-online-action-group-alert-1.html

Kentucky Blue Ribbon Commission - Items Still Under Consideration

MEMORANDUM

To:	Blue Ribbon Commission on Tax Reform
From:	Staff
Re:	Items Still Under Consideration
Date:	November 18, 2012

Dear Commission, below see the tax reform proposals that are still under consideration:

Individual Income Taxes

Proposal # 1: Add additional tax rates for higher income individuals on the income tax

Proposal # 2: Change the reference to the Federal Code from December 31, 2006 to December 31, 2012

Proposal # 4: Eliminate or reduce the income tax

Proposal # 6: Enact a state Earned Income Tax Credit

Proposal # 7: Implement a tax deduction for 529 college savings plan contributions

Proposal # 8: Limit itemized deductions

Proposal # 9: Make taxable income equal to the federal Adjusted Gross Income (AGI) less a significant standard deduction and tax credit for low income households

Proposal # 10: Tax Retirement income

Proposal # 11: Remove the spousal division on income and deductions

Corporate Taxes

Proposal # 14: Create an R&D Tax Credit

Proposal # 28: Exempt business-to-business transactions, including the purchases of business inputs used for the manufacture of goods

Sales and Excise Taxes

Proposal # 29: Apply transient room taxes to entire hotel accommodation price

Proposal # 30: Apply sales tax to pre-written computer software

Proposal # 32: Charge sales tax only on materials used to build a manufactured home, or 50 percent of the retail cost

Proposal # 34: Exempt mail charges for direct mail from sales tax

Proposal # 35: Extend sales tax to the auction price of a thoroughbred horse

Proposal # 36: Remove the sales tax from livestock antibiotics

Proposal # 38: Impose a gross receipts tax of between 1 and 3 percent on both residential and business utilities

Proposal # 39: Impose a gross receipts tax of up to 3 percent for residential utilities

Proposal # 41: 1) Increase collection of out-of-state and Internet sales; 2) Support federal legislation allowing states to require remote firms to collect sales tax

Proposal # 42: Increase the tax rate on cigarettes and other tobacco products

Proposal # 43: Raise the sales tax

Proposal # 46: Review the sales and use tax on equine products

Property Taxes

Proposal # 47: Allow school districts to maintain the current property tax assessment rate even when the new assessment surpasses the four percent cap

Proposal # 48: Create a tax credit for the bourbon industry to offset the property tax on stored barrels of bourbon, without reducing local property taxes to school districts

Proposal # 49: Eliminate personal property taxation

Proposal # 50: Exempt Inventory from Property Tax

Proposal # 51: Freeze the state property tax rate at 12 cents per $100 of value

Proposal # 52: Increase funding for PVA offices, or create a dedicated funding stream for PVA offices

Proposal # 55: Identification of public service companies for taxation

Proposal # 57: Amend the Constitution to eliminate the homestead exemption for those over 65 while putting in place a statutory means-tested property tax circuit breaker for those over 65

Proposal # 58: Remove the HB44 recall provisions for local and school real property taxes

Severance Taxes

Proposal # 61: Clarify the definition of “gross value” under severance tax

Other Taxes / Issues

Proposal # 62: Eliminate Tax Increment Financing programs (TIFs)

Proposal # 63: Establish a Kentucky estate tax with modest exemption limits

Proposal # 64: Impose the Pari-mutuel tax on advance deposit wagers made by Kentucky residents on live races conducted at Kentucky race tracks

Proposal # 65: Sunset or provide regular review of tax incentives

Proposal # 66: Broaden the hospital provider tax to include doctors

Road Fund Issues

Proposal # 67: Implement a trade-in credit for new car purchases

Proposal # 70: Modify the index in the gas tax rate to tie it to the inflation rate of transportation infrastructure construction costs

Local Taxation Issues

Proposal # 71: Allow all classes of local governments to have a local option food and beverage tax

Proposal # 72: Amend the Constitution to allow a local general sales tax

Proposal # 73: Switch to a statewide restaurant tax of one percent instead of localities having different restaurant taxes

Proposal # 74: Allow single sales factor apportionment as a defined option to the city/county business tax calculation

Simplicity, Compliance and Tax Administration

Proposal # 76: Allow non-renewal of professional licenses, driver’s licenses and vehicle registration if taxpayers are delinquent on state taxes to improve collections

Proposal # 80: Create a uniform occupational tax statewide form

Proposal # 86: Installment payment agreement clarification

Proposal # 87: Make LLC members personally responsible for all taxes & make corporate officers personally liable for motor vehicle usage tax

Proposal # 89: Review the disparity in the tax code and law between documented and undocumented boats

Proposal # 90: Sales tax successor liability to enhance the Department of Revenue’s collection efforts

Proposal # 93: Return to a balanced interest rate on taxes owed to and by the state

Proposal #96: Eliminate the estate tax

Kentucky Pays $3 Million a Year for State Employee

These are tough times for many Kentuckians across the state. The unemployment rate is hovering around 8.4 percent statewide, and in some counties, unemployment exceeds 13 percent. But, according to the government, the recession didn't hit Kentucky as hard as some other states. We were more fortunate than some, and less fortunate than others.

Either way, the downturn in the economy, combined with much slower than projected economic growth, has impacted state revenues.  Therefore, many state governments, including Kentucky, are now calling on their citizens to do their fair share, which normally means, pay more taxes.

To determine Kentucky tax payers' fair share, and who will pay it, Governor Beshear appointed a group, headed by Lieutenant Governor Abramson. The group, called the Kentucky Blue Ribbon Tax Reform Commission, started work in the spring of 2012, and proposed a number of ways to increase revenues for the state treasury, but has not offered a single proposal to reduce government spending. And excessive government spending is, by any mathematical calculation, the root of Kentucky's fiscal problems. 

For example, a search of the Louisville Courier-Journal's Government Salaries Database reveals 32 state employees who make between five-hundred thousand and three million dollars each year, for a combined total of $24,083,703 dollars. The two highest paid state employees are the University of Louisville's basketball coach, Rick Pitino, who receives 3 million dollars a year, and the Cardinals' football coach, Charlie Strong, who earns 2.3 million dollars a year.

(Top 15 recipients of Kentucky Tax dollars)

The combined 5.3 million dollars for Pitino and Strong are 100 percent funded by state tax payer dollars. In contrast, University of Kentucky Coach, John Calipari, receives 400 thousand dollars annually from Kentucky tax payers. The remainder of his multimillion dollar contract is funded by sponsors like Nike, and through other private resources. A similar structuring of the Pitino and Strong contracts would save Kentucky tax payers 4.5 million dollars each year. 

This is just one small example of how the state government could save millions of tax payer dollars. Hopefully, as the Governor, the Blue Ribbon Commission, and the state legislature move forward on taxes, they will ensure taxes are not just equitable, but more importantly, essential to the welfare of the Commonwealth.

Medicare Premiums Increase $5 a month in 2013

An early Happy New Year to retirees in Kentucky and across America. The Associated Press is reporting a five dollar monthly increase in MEDICARE premiums is set to go in effect for 2013.

According the AP report,

"Medicare premiums are going up $5 a month in 2013, the government said Friday. It's less than expected, but still enough to eat up about one-fourth of a typical retiree's cost-of-living raise next year."

Read more at:
http://www.wkyt.com/wymt/home/headlines/Medicare-premiums-going-up-5-a-month-for-2013-179697211.html

40 Million in Tax Credits for Investors

(Proposed Angel Investor Act)

The Kentucky Online Action Group found the pre-filing of Angel Investment Act (shown on the right), which is the result of a proposal submitted by the Kentucky Blue Ribbon Tax Reform Commission. The act provides 40 million in tax credits for investors.

While proposing tax credits for investors, the commission recommended some very serious tax changes for the rest of Kentucky citizens. Some of which include: 

- taxing retiree Social Security benefits, which were previously exempt from the state income tax;

- taxing Military retirees, IRAs, and other pension plans starting at $15,000 instead of the current level of $41,110;

- eliminating 75% of the total in itemized deductions for things like home mortgage interest and charitable contributions.

Looking at the proposals by the Blue Ribbon Commission, it seems obvious that it overlooked one important detail; the 2012 poverty level, which is currently set at $11,860 dollars for an individual.  Therefore, taxing retirees making about $15,000, is basically taxing people who earn just $3,140 dollars above the poverty level.

More Taxes, But No Government Spending Cuts

KENTUCKY BLUE RIBBON TAX REFORM COMMISSION SUPPORTS MORE TAXES, LESS DEDUCTIONS, AND NO GOVERNMENT SPENDING CUTS (11/18/2012)

The Louisville Courier Journal reports the Governor's Blue Ribbon Tax "commission already has made some controversial recommendations...

Recommendations that could touch the lives of every Kentucky taxpayer — from changing the state income and sales tax rates to increasing the cigarette tax."

Some of the most controversial include:

- Tax Social Security benefits, previously exempt from the state income tax, as the federal government does.

- Supports taxing retiree income starting at $15,000 instead of $41,110.

- Eliminate 75% of the total in itemized deductions for things like home mortgage interest and charitable contributions.

Read more at: http://www.courier-journal.com/article/20121118/PRIME08/311190012/Decisions-loom-Monday-for-Kentucky-tax-reform-commission

 

Kentucky Ghost Government

Frankfort, KY (11/14/2012) - Kentucky "ghost government" generates $2.7 billion a year. The "ghost government" is "unelected entities such as libraries, sanitation districts, fire departments and public health departments - that have the ability to fee and tax but operate with little oversight and accountability."

WKYT reports, "the auditor's office has identified more than 1,200 special districts in Kentucky, with 17 in Perry County alone. These organizations make up a nearly $3 billion layer of government that state auditor Adam Edelen says has operated in the shadows for decades."

Read more at:
http://www.wkyt.com/wymt/home/headlines/State-auditor-wants-more-oversight-of-special-districts-179380561.html

Will Kentucky Rob Poor to Fund Rich?

A report by Kentucky Online Action Group on Saturday, November 17, 2012 at 2:03pm 

KY TAX REFORM UPDATE: The Governor’s Blue Ribbon Tax Reform Commission recently voted to support an “angel investor” tax credit, giving wealthy investors "up to a 40% tax break" on monies used to fund start-up businesses. Meanwhile, the Blue Ribbon Tax Reform group still supports the proposal to "broaden the tax base" by including retirees earning $15,000 or less. This appears to be a prime example of how government takes from the poor and gives to the rich, through the tax code.



How does the government rob the poor to pay the rich? Through the tax code, of course. Under the "angel investor" tax credit, strongly supported by the Governor's tax reform group, a person with the money to do so, may fund a person, or group, to start a new business. In return, the person funding the new business receives part ownership, part of the profits, or another form of return from the new business. Now, in addition to getting some form of payback from the new start-up business, the Blue Ribbon Tax Commission wants to give "angel investors" a tax credit for up to 40 percent of the money put into the new start-up.

We do not have all the details on the tax commission's proposal, however, as an example, let us say the "angel investor" provides $100,000 dollars to a new start-up business. When the angel investor files state taxes,  he/she would receive a 40% tax credit on the $100,000 dollars. In other words, the angel investor receives a $40,000 reduction in taxes. Put another way, that is $40,000 dollars not collected in state income taxes. And Kentucky taxpayers will have to pay for that $40,000 tax credit. Under the Blue Ribbon Tax Commission's proposal, those Kentucky tax payers would include retirees making as little as $15,000 dollars a year, which is only $3,140 over the national poverty level.     

Kentucky's Tax Base, Broad as the Grand Canyon

The Kentucky Blue Ribbon Tax Reform Commission is looking for ways to "broaden the tax base." Well, if anyone pays taxes, it is almost everyone in Kentucky. 

How broad is the tax base? I conservatively estimate that well over 90 percent, if not 100 percent, of Kentucky's citizens pay at least some form of the various taxes, surcharges, and fees levied by the commonwealth.

In fact, if the overall breadth of Kentucky's tax base was compared to a landmark, it  may well be called the Grand Canyon of the Commonwealth. And with good reason, after reviewing just some of the obvious taxes paid by Kentuckians, which currently include: payroll taxes (medicare, social security, etc.); federal, state, and local income taxes; sales taxes on homes, autos, clothing and household items purchased; taxes and surcharges on cell phones, home phones, internet; cable, DSL, and satellite TV; sewer, electricity, and water; property taxes, or if you rent, the owner tacks that on. You pay taxes to get marriage licenses, driver licenses and pet licenses, you pay taxes each time you renew your vehicle, boat, or motorcycle registration. You pay taxes on dental, medical, auto, home, and life insurance, as well as gasoline, kerosene, diesel, propane, and every other form of fuel available. And if you think death is the only way out, you are wrong, because that is taxed too.

It seems the commonwealth already has has an extremely broad tax base. However, the Kentucky Blue Ribbon Tax Reform Commission recently proposed taxing retiree income starting at $15,000 dollars, basically $3,140 dollars above the 2012 U.S. individual poverty level of $11,860. This is little more than the poor feeding the poor, and far from a solution to the problem of free fall government spending.

 In conclusion, I offer a simple question to all who read this. At what point should the government spend less? When everyone, except the government, is living in poverty? That seems to be the plan, because the Blue Ribbon Tax Reform Commission failed to make a single recommendation to reduce government spending.