Equitable — eq·ui·ta·ble (ˈe-kwə-tə-bəl) —
dealing fairly with all concerned;
distributing resources based on the needs of the recipients
Crafting a comprehensive budget for a state government is no small task. The budget doesn’t just allocate funds; instead, it is a living example of the policy outcomes that lawmakers value for our state.
Unfortunately, in Kentucky this has resulted in both imposing regressive taxes on our citizens and giving tax breaks to corporations. Rather than asking more of those that have more, our budget is structured to be “equal,” but not equitable. So, what would it take to build an equitable budget in Frankfort?
We spoke with Pam Thomas, a Senior Fellow at the Kentucky Center for Economic Policy (KY Policy), about what is needed to have an equitable budget in our state. Thomas was previously the staff administrator for the Appropriations and Revenue Committee in the KY House, so she is intimately familiar with our state budgets.
At KY Policy, their mission is to produce credible research breaking down complex issues so Kentuckians can better understand how policy choices affect their everyday lives. And almost nothing affects our lives as much as the choices made in our state government’s budget.
What’s the biggest thing keeping us from an equitable budget?
When it comes to the biggest issue facing the state budget, Thomas says: “The primary long-term systemic issue facing Kentucky is that revenues are insufficient to meet budgetary needs. This has been the case for a long time, resulting in cuts to crucial services so that almost everything is underfunded.”
She continued: “We’re in a bit of a different situation right now because of COVID, which has impacted state revenues and expenditures, but this is a different discussion than the long term issues with our revenue streams.
In the short term, revenue estimates have been reduced because of COVID, and federal fiscal relief has propped up our economy so that the fiscal impacts haven’t been as devastating as they could have been. Current predictions are that revenues will come in better than expected for the current fiscal year, which is good, but the expectations were reduced because of COVID, and the overall situation needs to be looked at in context.”
What about raising revenue through taxes?
One area Thomas identified that needs to be looked at to improve our revenue situation is the individual income tax. She noted that:
“Over the past few years, changes to the tax code have been made to shift reliance from the individual income tax, which can be configured in a more progressive way and which tracks better with the economy, to consumption taxes, which generally do not grow as quickly and are more regressive.
“A progressive tax is one which asks more of those who have more, while a regressive tax asks more of those who have less, requiring them to pay a larger proportion of what they have in taxes.
“One of the reasons that income-based taxes track better with economic growth is because more revenues are collected as income increases over time, and rates can be graduated to increase as the amount of income increases. Excise (sales) taxes are typically transactional, which means they are imposed on individual purchases of goods or services, and generally people do not buy significantly more taxable items as their income increases. Excise taxes are more regressive because people with less money have to spend more of what they have to meet basic needs.”
Not everyone in Frankfort is opposed to a more progressive tax system though. Thomas commented on Rep. Lisa Willner’s (D-35) House Bill 356 relating to taxation:
“A bill has been filed by Representative Willner this session, that would increase and make the individual income tax rate more progressive. It would increase the tax rate and remove some of of the tax breaks for corporations, it would broaden the base on the sales tax, and it would raise quite a bit of money. … For our revenue stream to sustain over the long term we need to have a tax base that grows with our economy; otherwise the legislature is going to have to come back every few years and do something to generate more revenue.”
Any other ways to increase revenues?
With regard to other areas that should be examined this session to raise additional revenues, Thomas noted that:
“The General Assembly just passed Senate Bill 120, which allows the slot machines that have been installed at horse tracks to continue to operate, and also authorizes the continued expansion of ‘racinos’ to other locations across the state. The taxes paid on revenues from operation of these machines is extremely low – much lower than imposed by other states. And, a majority of the revenues collected are returned to the horse industry through various funds and programs. The legislation did not increase the tax. Despite the industry committing to increasing the tax rate this session, and a strong push by a coalition of organizations to raise the tax, there has been no movement on this issue, and there should be.”
A report published by KY Policy identifies additional fiscal federal relief in the short term to help the state continue to navigate through and recover from the recession caused by COVID, and more state revenues in the long term keys to kickstarting our economy and putting us on a sustainable long term path.
Will we have an equitable budget this year?
The budget process this year has been unusual because normally budgets are enacted for a two-year period during even numbered years. However, due to COVID, the General Assembly enacted a one-year budget in 2020, requiring the enactment of another one-year budget this year during the shorter 30-day odd year session.
Governor Andy Beshear introduced his budget proposal early in the session and KY Policy, in a review of that proposal, found much to like, given our current situation and the uncertainties we continue to face. However, the budget is now in the hands of the General Assembly, and they have proceeded without the usual subcommittee meetings and public hearings, opting instead to fast track the process so that the budget bills are now in free conference committee made up of the Republicans in House and Senate leadership, where final decisions will be made.
So, when it comes to whether or not Kentucky’s budget can become more equitable, we will not know the answer until the budget comes out of the conference committee and gets presented. Let us hope that “equitable” is one of the words that can be use to describe it — at least a little.
–30–