Farmer leaves tax reform group, says Democrats want tax increases

State News

January 27, 2010

By RONNIE ELLIS The McCreary County Record Wed Jan 27, 2010, 03:44 PM EST

FRANKFORT — The bi-partisan effort to study tax reform in the state House of Representatives hit a roadblock Monday when Rep. Bill Farmer, R-Lexington, one of the key players in the debate announced he's pulling out.

Farmer said Democrats want a plant that is a "broad base tax increase under the guise of tax reform."ù He said the size of an earned income tax credit proposed by Democrats, led by Rep. Jim Wayne, D-Louisville, represents "a redistribution of wealth."ù

Wayne said that's not true - nor has any plan been finalized which incorporates Farmer's objections.

"There's no proposal yet,"ù Wayne said when told Farmer might be thinking of pulling his support for an effort to "blend"ù his and Wayne's separate bills on tax reform. Both men referred to estimates of state revenues depending on several different changes in the tax code, but Wayne said those data are "only a starting point using (Wayne's) House Bill 13 and Bill Farmer's bill."

Farmer and Wayne have each proposed changes to the tax system but they take different philosophical approaches. Farmer would eliminate corporate and individual income taxes and extend the sales tax at a lower rate to services. He says the change would aid job creation.

Wayne's proposal is to apply the sales tax to some "luxury services,"ù shift some of the tax burden to the more wealthy while incorporating an earned income tax credit for the working poor and giving the middle class a tax break. He says his measure is fairer because currently the lowest income groups pay a higher percentage of earnings than the wealthy.

House Speaker Greg Stumbo, D-Prestonsburg, asked the two to work with former budget chair and expert on state budgets, Rep. Harry Moberly, D-Richmond, and others to "blend"ù the two proposals and bring a compromise to House leaders. That's the group Farmer said Monday he's leaving.

On Monday, Farmer said his "recommendations were abandoned and the tax reform plan I proposed was morphed into a full frontal tax increase."

Stumbo said Farmer's plan contained a miscalculation by legislative staff but Farmer said he knew of the miscalculation and had accounted for that, but his intent he said had always been to produce a revenue-neutral plan and the Democrats' plans would produce significantly more revenue.

But Wayne - even before Stumbo asked him and Farmer to collaborate - always listed as one of his goals to produce a more "reliable"ù revenue stream for a budget which currently faces as much as a $1.4 billion shortfall over the next two years. Without new revenue, Stumbo said Monday, the state would have to impose "draconian"ù cuts in the next budget.

Taxes are a touch subject for incumbent legislators in an election year and all 100 House members will be on this year's ballot. Monday afternoon, Farmer learned he'd have a Republican opponent in the May primary - Jacob Hartlage of Lexington. So far, no Democrat has filed. But Farmer told Kentucky Public Radio late Wednesday afternoon that had nothing to do with his decision to pull out of the working group.

Farmer said the Democratic plan would have reduced income taxes by less than 1 percent and by placing the sales tax on some services and eliminating some sales tax exemptions raise $850 million. Wayne said there is no Democratic final plan and the $850 million cited by Farmer is simply one of several results of different tax changes on a spreadsheet to show the group how each would affect the state budget.

Farmer also objected to the cost of the earned income tax credit proposed by Wayne $93 million in FY 2012, calling it a "redistribution of wealth."ù But Wayne said the proposal grants the credit up to 15 percent the federal credit and said that is based on the median of such credits in other states that offer it.

RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.

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