Making Taxes Work for Everyone

As the Kentucky General Assembly begins its annual Reaming of the Commonwealth, the big item on the agenda is revising the tax code. David Williams and the rest of the rethuglicans are hell-bent on stripping the last shreds of income away from the state's shrinking middle class in order to further fatten our obscenely wealthy, who make up for their small numbers with outrageous greed.

One blogger has the experience, the persistence and the smarts to dig into Kentucky's tax system and figure out reforms that will really work. You should be reading Ralph Long every day.

On Sunday, he solved the corporate tax problem:

Let’s take a look at Kentucky Corporate Income Tax.

Every corporation pays taxes. Corporate taxes can be computed three ways.

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This is pretty small business friendly; the first $100,000 is taxed at an average rate of 4.5 percent. Not bad since most of the businesses in Kentucky fall into the small business category.

So when we talk about abolishing the corporate tax, who really benefits?

I’d say the top five winners would be Humana, Brown Forman, Lexmark, Ashland and Yum Brands.

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So let’s do a little math, we’ll round the numbers to make it a little easier, for an annual net income for just these 5 companies. We’re looking at roughly $4 billion dollars in net profit. Now if they actually paid 7 percent to Kentucky that would be about $280 million to the state treasury.

According to Office of the State Budget Director, the Corporate Income tax collected in the first quarter of fiscal year 2011 was $69.9 million. So if that holds for the next 3 quarters we are looking at about $280 million in revenue from corporate taxes.

That’s from all the corporations in Kentucky not just the big five.

So here’s a proposal, remember the dollar amounts are net profit and that the rates would need to be reviewed on a regular basis.

Eliminate all corporate income tax on the first $50,000 in net profit. This helps small businesses and start-ups.

Reduce the rate to 3 percent on the next $50,000 in net profit.

From $100,000 to $250,000 reduce the rate to 5%.

Now every business with less than a quarter million in net profit got a major tax break.

From $250,000 to $1 million set the rate at 7 percent, no change for these companies.

Only after a million dollars in net profit do the rates increase.

From $1 million to $250 million set the rate at 10 percent.

Over $250 million set the rate at 12 percent.

And one other thing, no deductions, no exclusions, no exemptions, no extra breaks period. Just pay the rate.

This gives over 90 percent of the businesses in Kentucky a tax break, spurs employment and increases revenue for the Commonwealth.

And Long's personal income tax reform proposal is just as straightforward:

First the sales and use tax needs to be expanded to all goods and services except food bought for preparation and medical expenses. While regressive in nature this would provide the elasticity needed in the tax base.

Second the sales tax rate is lowered to 3 or 4 percent from the current 6 percent.

Third exempt the first $50,000 of income from taxation. According to the United States Census the median family income in 2008 in Kentucky was $41,489 and the median income in the United States was $52,029. This would effectively eliminate the income tax for over half of Kentucky’s households.

Fourth, income from $50,001 to $75,000 would be taxed at 6 percent.

Fifth, income from $75,001 to $100,000 would be taxed at 9 percent.

Sixth, income from $100,001 to $250,000 would be taxed at 12 percent

Seventh, income over $250,001 would be taxed at 15 percent.

There would be no deductions or exemptions.

Admittedly the percentages will need to be tweaked and subsequently reviewed on a regular base to keep the system fair. I don’t have access to the detailed economic forecasts the state budget office has therefore the starting percentages may need to be different.

The combination of widening and lowering the sales and use tax while elminating the income tax for over 50 percent of Kentucky households would put the money in the hands of people who will buy products and services.

Couple this with a more progressive and agressive tax on high income individuals makes the system fair to all taxpayers.

Have you talked to your Democratic neighbors today?

Get the email and phone number of your legislators here.