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‘Chicken Littles’ are wrong: Eliminating AMC will not cause sky to fall

By Jim Waters

Several Kentucky state lawmakers now indicate that failing to do away with the detestable Alternative Minimum Calculation (AMC) tariff during the last budget session was a mammoth blunder likely to drive away potential employers and the jobs – and tax revenues – they would create.

Kentucky House Speaker Jody Richards recently told reporters that the tax is “un-American.” House Minority Leader Jeff Hoover said the Republican caucus is “united” behind a proposal to kill the AMC.

Good for them. Apparently, they now understand that the tinkering done during last year’s special session – the end result of which was to leave the tax in place for most of Kentucky’s businesses – was not enough. Not even close.

It’s a notable change in positions for legislators who originally bought into the misguided notion that the commonwealth could not survive without the revenue generated by such an onerous tax. That they are moving in the right direction on this issue is reinforced by positive revenue estimates and a governor who breathlessly exclaims that Kentucky now has a $279-million surplus that’s burning a hole in his pocket.

“ … the knees of these newspapers’ editorial writers can’t stop knocking at the mention of any tax cut.”         

The real test will be whether converted lawmakers follow through and not allow good intentions to get bogged down in the political process. But at least they are now talking about flipping – and flopping – in the right direction.

Kentucky taxpayers and entrepreneurs remain optimistic that policymakers will do what is best for a large number of entrepreneurs and small-business owners rather than just thinking about short-term avenues toward increasing revenues so more spending can occur.

However, that optimism should remain very guarded for a couple of reasons. First, Frankfort’s political culture has largely been – and remains – more about increasing revenues than controlling spending.

By passing the AMC in the first place, many of the same lawmakers now singing a different tune disregarded the negative impact that such a crushing tax would have on small businesses, which, according to the Kentucky Cabinet for Economic Development, comprise more than 88 percent of the state’s economic makeup.

How could any politician in their right mind vote for a tax that threatens the very survival of our state’s smaller firms? Requiring businesses that don’t even make a profit to pay taxes is not only unsound public policy … it’s even bad politics, too!

The political “group-think” that occurs during legislative sessions can cause lawmakers personally opposed on principle to such burdensome taxation to allow themselves to be convinced that government knows best. Perhaps that’s what led humorist Mark Twain said: “No man’s life, liberty or property is safe while the legislature is in session.”

Second, the editorial pages of the state’s largest newspapers have predictably regurgitated their tired claims that Kentucky’s fiscal sky will fall if lawmakers rid the citizenry of this tax. The tone of their shallow arguments is that policymakers should exercise caution – even when it comes to eliminating one of the most harmful taxes in the commonwealth’s history.

The Lexington Herald-Leader clamors that “Kentucky needs the money,” while the Courier-Journal tries to make lukewarm lawmakers shudder by prophesying that completely repealing the AMC would “knock a big hole” in the budget and that lawmakers wouldn’t “have the guts to raise other taxes to plug that hole. It’s apparent that the knees of these newspapers’ editorial writers can’t stop knocking at the mention of any tax cut.

Unfortunately, Kentuckians who form their opinions about tax-and-spending issues based upon these editorial pages are likely to buy into their baseless assertions that getting rid of this embarrassing tax will cause our current obese budget to crash and burn.

Thoughtful Kentuckians would be better off watching the latest version of the movie “Chicken Little.”

“The sky is falling,” cries Chicken Little from the bell tower of the local church. Of course, when the people of the town determined it was a false alarm, they just about had a town-wide chicken fry.

Why didn’t these editorial writers climb up into Frankfort’s bell tower before the AMC was approved in 2005 and warn lawmakers that passing such a tax might cause Kentucky to fail to attract new jobs? Why weren’t these newspapers’ op-ed pages calling for caution before this tax was forced upon already-overburdened businesses struggling to compete in a global economy?

The analogy of the Chicken Little story, of course, ultimately breaks down. Chicken Little was finally proven right, but at least he had to prove it before the town’s people believed him.

The next time Frankfort’s politicians want to take more of taxpayers’ hard-earned money to spend on a swollen budget, they – and the state’s op-ed pages – should at least offer some substantive evidence that with an oppressive tax such as the AMC, Kentucky’s fiscal sky really will collapse.

– Jim Waters is director of policy and communications for the Bluegrass Institute, Kentucky’s free-market think tank.

The Bluegrass Institute is an independent research and educational institution offering free-market solutions to Kentucky's most pressing problems.

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