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Echoes from the political graveyard

Bluegrass Institute For Public Policy Solutions

From the political graveyard, outgoing Kentucky Gov. Paul Patton resurrects the most familiar theme during his stormy tenure: Raising taxes is the only way to save the Commonwealth’s sinking economic ship.

A proposal recently released by Patton intends to pressure the incoming Fletcher administration to wade into perilous waters, too. It repeats the well-worn arguments of big spenders, including the oft-repeated contention that Kentucky lags behind other states in revenue raised from smokers. Patton’s predictable solution: Raise taxes on each pack of cigarettes by 1,733 percent!

But there is a new wrinkle in the governor’s latest scheme. Patton suggests “temporarily” increasing the state sales tax by a full percentage point for the next “two or three years,” during which video slot machines would be legalized and begin producing revenue. Theoretically, the sales tax increase would then be rolled back to its current 6-percent rate. This scenario bears little credibility, considering that spend-happy politicians and the special interest groups that sustain them have never been satisfied with a temporary tax increase.

Instead of asking for more from taxpayers, Patton should offer to cut spending on unnecessary projects like the Legislative Research Commission’s plan to expand its offices in the Capitol Annex in Frankfort, a move that will cost taxpayers nearly $2 million.

Couldn’t these costs be “temporarily” delayed until the budget crisis is past? Even the Courier-Journal’s editorial board, not usually a champion of spending cuts, called the LRC’s move into “expensive, new digs” a costly error by the legislators who approved the funding.

In addition, instead of “temporary” tax increases, why not execute permanent cuts in economic development spending that would eliminate duplication of services and give taxpayers a better return on their investment? Despite large budget increases in the Cabinet for Economic Development – including a 42-percent hike this year – Kentucky lost 24,441 jobs as 301 manufacturing plants closed their doors since 2000.

In spite of this exodus of jobs, the latest information from the economic development cabinet indicates a manager-to-employee ratio of 2.4 to 1. Thirty-six cabinet managers reaped average salaries of nearly $81,000 in fiscal year 2003 that alone consumed $2.9 million, or 9 percent, of the cabinet’s budget. This sounds like “too many cooks spoil the broth” to us!

When it comes to raising revenues, policymakers jump at the chance to push for higher taxes on cigarettes because they are politically correct and immensely profitable. After all, it’s politically less painful to raise taxes on smokers than enact spending cuts critical to the state’s future economic health.

These policymakers ignore the unintended consequences of raising cigarette taxes in Kentucky, conveniently disregarding the fact that tobacco remains the number-one moneymaker for the state’s farmers. They also underestimate the impact on retail outlets at the Kentucky borders that sell cartons of cigarettes at a rate at which most stores sell individual packs. Hiking cigarette taxes to 55 cents or more would decimate those businesses.

Imagine the reaction a Michigan governor would receive if he proposed increasing a consumption tax on automobiles by 1,733 percent! Voters there would begin a recall election faster than you can say, “Gray Davis!”

Patton’s proposal to implement a temporary sales tax hike, rely on gambling revenues and raise the cigarette tax amounts to a band-aid approach at best. Instead Frankfort’s bureaucracy should experience a clean, skillful stroke of physician Fletcher’s scalpel.

The liberal media and beneficiaries of bigger government have tried to create toleration for higher taxes by calling a deficit forecasted to reach $710 million in 2004 a “revenue shortfall.” The truth is, Kentucky does not have a funding problem. According to Kentucky Taxpayers United, state revenues have more than doubled since 1985, rising at an average annual rate of 5.45 percent, nearly double the rise in inflation during the same period.

The problem is one of out-of-control spending, including the squandering of solid economic surpluses built during the boom of the nineties, most of which happened on Mr. Patton’s watch.

In the last election, taxpayers said “enough,” relegating Mr. Patton and his party to Kentucky’s political graveyard, in which there also is room for the next administration should it stray from its mandate to cut the size of this monstrous government.

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