- Associated Press - Tuesday, February 11, 2014

FRANKFORT, Ky. (AP) - Lt. Gov. Jerry Abramson told lawmakers Tuesday that a wide-ranging tax plan unveiled by his boss represents the administration’s “best shot” at making Kentucky more competitive by reshaping the tax code.

A week after Gov. Steve Beshear outlined his 22-point plan, Abramson went before the House Appropriations and Revenue Committee to delve into details affecting virtually every Kentucky taxpayer.

“Nothing in here is in stone or in concrete,” Abramson told the panel during its first public review of the proposal. “We’re at a point where the discussion needs to begin. … And this is our best shot in terms of what we see in a balanced approach that will move the commonwealth forward.”

Committee Chairman Rick Rand praised the second-term Democratic governor for having the “political courage” to present a comprehensive tax overhaul plan, which comes in an election year.

“We all know what happens - it gets picked apart, holes shot in it,” Rand said. “But nevertheless, it has to be out there so we know what we’re talking about.”

Then came a series of questions and critiques from committee members.

Rep. Jim Wayne, D-Louisville, said the proposal contains “many sound ideas,” but said it has some shortcomings in achieving the goal of tax fairness.

Wayne praised the proposed refundable state earned-income tax credit, but said it needed to be bolstered to provide more help to low-wage earners. And he expressed concerns about extending the state’s 6 percent sales tax to such services as the cost of labor for auto repairs.

“For low-income folks, that can hit hard,” Wayne said.

Rep. Jody Richards praised the inclusion of expanded tax credits to encourage business growth. But he expressed concerns about a provision to reduce a pension income tax break for higher-income retirees.

The plan would reduce pension income tax breaks for people with annual gross incomes of more than $80,000. Currently, the state does not tax the first $41,110 of retirement income of any taxpayer regardless of income. That exclusion would be reduced - but only for a taxpayer whose adjusted gross income is more than $80,000. And the exclusion would be phased out for taxpayers with annual incomes of more than $100,000.

Richards, D-Bowling Green, said the $80,000 threshold seems like “quite a bit now” but worried that reducing the pension tax break would help erode pensions that can dwindle late in life.

“I have known so many people in my life who have had quite a bit of money when they retired … and lived to be 95 and often they have just simply run out of money,” Richards said.

He suggested adding an “escalator” to gradually increase the threshold amount in future years, noting that in a decade from now, $80,000 “won’t be a lot.”

That pension-related proposal would affect about 90,000 of the state’s 1.8 million tax filers. Social Security benefits would remain exempt.

The panel took no vote on the package. Afterward, Rand said the committee could eventually vote on a tax overhaul proposal if House leaders can reach agreement with their Senate counterparts.

House Speaker Greg Stumbo later told reporters that tax modernization remains at “the discussion level” among House members, and that its chances in the chamber are “possible but daunting.”

The governor’s plan would generate nearly $210 million more in state General Fund revenues each year once fully implemented. Last month, Beshear recommended $98.6 million in spending cuts in the two-budget budget proposal he submitted to lawmakers. The cuts would free up more money for education.

Beshear has cut about $1.6 billion from the state budget since taking office in 2007, due to sluggish state revenues caused by the recession.

His tax reform bill would raise the state cigarette tax to $1 a pack from 60 cents. It would reduce tax rates for individuals and businesses.

The sales tax would be extended to labor costs to repair autos, computers and electronics, admission to golf courses, country clubs and fitness centers. Other services targeted would include some landscaping work, janitorial services and tanning salons.

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