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Beshear offers far-reaching tax overhaul plan


FRANKFORT - Gov. Steve Beshear proposed updating Kentucky's tax code on Tuesday with a far-reaching plan that would reduce tax rates for individuals and businesses, extend the state sales tax to more services and expand tax credits to encourage job growth.

The plan would generate nearly $210 million more in state General Fund revenues each year once fully in effect, the governor said in unveiling his long-awaited plan.

Smokers would pay a higher state tax rate for each pack of cigarettes they puff. Higher-income retirees would have their pension income tax breaks reduced.

And the state's 6 percent sales tax would be extended to such services as the cost of labor for car repairs and admission to golf courses, country clubs and fitness centers. Other services targeted would include landscaping, janitorial and tanning salons.

Kentucky's renowned bourbon and horse industries would receive tax breaks as part of the 22-point plan presented by the second-term Democratic governor.

Beshear said his plan would modernize an outdated tax system, enhancing the state's competitiveness while guaranteeing sufficient revenues to run state government.

"I think this proposal makes sense," the governor said at a Capitol press conference. "I think it's fair. I think it's equitable to everybody.

"And I think it does what ultimately we want, and that is to have a modern tax code for Kentucky that will create revenues as the economy grows and will attract new jobs."

Beshear's proposal will be introduced by House Appropriations and Revenue Committee Chairman Rick Rand, who said the panel will start hearing testimony on the measure next week.

The 60-day General Assembly session is one-third complete, leaving lawmakers plenty of time to debate and vote on a tax reform package, Beshear said.

Beshear said he recognized the challenges of enacting tax changes in an election year for the politically divided Legislature. All 100 seats in the Democratic-led House and half the seats in the GOP-controlled Senate are on the ballot this year.

He said he was open to discussing other ideas with lawmakers to change the tax code.

"We've got to find common ground if we're going to have any success," Beshear said.

To keep the tax issue from being exploited for political gain, the governor said he would not request a vote in either legislative chamber unless a plan gains majority support.

House Speaker Greg Stumbo later praised parts of Beshear's plan but was skeptical of others - including the proposed tax break for the state's booming bourbon industry.

"Somebody's going to have to explain to me why they need a tax break," he said.

Stumbo, D-Prestonsburg, said the chances of passing a tax plan that increases General Fund revenues by about $210 million a year would be "daunting."

Senate President Robert Stivers said the bourbon sector proposal was among the aspects of the plan that would promote "a more business-friendly tax code."

The state's bourbon industry has been seeking a corporate income tax credit to offset the taxes it pays every year on whiskey barrels aging in warehouses. Under the industry's proposal, distilleries would have to reinvest the credit in their Kentucky operations.

Stivers, a Manchester Republican, was critical of the governor's proposal to raise the state cigarette tax to $1 a pack from 60 cents. Stiver called it a "flawed premise," saying the higher proposed rate would shrink the amount of revenue.

Kentucky remains the nation's top producer of burley tobacco, used in many cigarettes.

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