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June 2012
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Kansas may have best tax reform plan


Louisiana may be the state most like Kentucky.

They are the 25th and 26th most populous states with about 4.6 and 4.4 million people, respectively. This makes them the only two states with six U.S. representatives, which means they are also the only two states having eight electoral votes.

Both are among the bottom 10 states in median household income, at about $41,000, and per capita income, at about $23,000. Louisiana ranks 23rd nationally for gross state product, while Kentucky is 28th.

They are also each in the bottom 10 in educational attainment, with about 82 percent of people 25 years old and over having a high school degree and 21 percent having an undergraduate degree. They have the two highest male cancer incidence rates in the nation.

There are some significant differences between the Pelican and Bluegrass States, however. For example, Louisiana's 5.7 percent seasonally adjusted employment rate is tied for the nation's 15th best, whereas Kentucky's 8.0 percent places 44th.

Republicans control the governorships and both houses of the state legislature in Louisiana. In Kentucky, the Democrats have the governorship and the state House of Representatives (at least for now).

While both states have second term governors, Louisiana's is Bobby Jindal, 42, a dynamic Republican with national ambitions. Kentucky's is Steve Beshear, 69, a bland Democrat who apparently harbors no Washington hopes.

Jindal spearheaded passage of major education and ethics reforms and is doing court battle with teachers unions over the former. A vocal opponent of Obamacare, he refused to expand Medicaid.

Beshear was essentially a bystander to education and pension reforms, but acted to implement Medicaid managed care throughout the state. He is all in for Obamacare, having bypassed the General Assembly to expand Medicaid eligibility and establish a state exchange website.

Predictably, Jindal and Beshear took different approaches to tax reform. Both have encountered resistance, and neither appears poised for success.

Last year, Jindal introduced a plan to "swap" his state's income tax for a broader-based and higher sales tax that applied to some services, but exempted food, prescription drugs, and utilities. He also wanted to close over two hundred "loopholes," and said the change would "make Louisiana the best place in the country to create jobs."

Business groups and the GOP legislature balked, and Jindal had to back off in embarrassment. Jindal was too bold, and it is unclear whether something less so can pass in Louisiana's upcoming legislative session.

Beshear's recently released plan is not nearly so daring. It calls for miniscule corporate and individual rate reductions, extending the sales tax to some services, and making some other relatively modest changes that amount to a tax increase. Indeed, it is so timid that nobody passionately backs it, not even Beshear himself, and its legislative reception has been tepid at best.

If Jindal's tax porridge was too hot and Beshear's is too cold, Sam Brownback of Kansas may be the Goldilocks of governors who found one just right. Kansas is close to Kentucky and Louisiana only alphabetically, but its Republican governor and legislature enacted contentious reforms (and then reforms to the reforms) that are now being put to the test.

Kansas lowered income tax rates (ultimately to 2.3 percent on the first $30,000 of income and 3.9 percent on income above that), set the sales tax rate at 6.15 percent (including on food, although low income Kansans can claim a rebate), and cut most non-charitable deductions. It is a tax cut, of which the non-partisan Tax Foundation says, "Kansas' tax code is now based more on consumption than it used to be and that will contribute to growth."

Brownback has bet on state-level Reaganomics and says, "We're not done bringing rates down." He is favored for re-election this year, but the vote may be a referendum on his "supply side" gambit and goal of eliminating state income tax altogether.

The Kansas unemployment rate is only 4.9 percent. Last year the state saw job growth, but less than in surrounding states. The state Supreme Court could soon impose education spending mandates that could bust the budget.

But Brownback says the Kansas economy is growing fast enough to pay for all-day kindergarten and other spending increases. Democrats decry other education spending cuts, point to a shrinking reserve fund, and fear future deficits from the tax cuts.

Kentucky should pay close attention to both Jindal's failure and Brownback's success. Based on them, Beshear may be able to argue that his incremental approach is the most prudent of all. But if Kansas booms, look for Republicans here to back more aggressive reforms like the Sunflower State's.

John David Dyche is a Louisville attorney and a political commentator for WDRB.com.

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