Fletcher says 'historic' tax bill will provide relief for the future

By MARK R. CHELLGREN
Associated Press Writer

FRANKFORT, Ky. (AP) -- Tax cuts to businesses, elimination of many low-income Kentuckians from the rolls and tax relief to some other targets will help make the state a better place in the future, Gov. Ernie Fletcher said Friday.

Fletcher signed the tax legislation that emerged from the 2005 General Assembly in an elaborate ceremony on the Capitol steps with testimonials from people who will benefit and lavish claims of its significance.

The tax bill is, "truly historic ... unprecedented ... astounding," Fletcher said.
Others said the tax bill is misdirected and benefits the most those who need it least.

"Overall, we're very disappointed that the bill is revenue neutral at a time when Kentucky needs to make some important investments," said Heather Roe Mahoney, co-director of the Democracy Resource Center in Lexington. "Revenue neutral is really going in reverse."

Fletcher and a healthy percentage of the legislature have signed pledges they would not raise taxes, so the neutrality proclamation was a critical piece of the political package to get it passed. But the bill also raises $137 million more than would have been expected for the state next year, with offsets coming in future years as tax cuts for individuals and companies take full effect.

The most obvious changes will be in the price of a pack of cigarettes on June 1, which will rise by 27 cents for the tax increase, and alcohol, which will rise by a 2 percent increase in wholesale prices.
People who make less than federal poverty level wages will be freed from having to file any income tax for the 2005 tax year, which Fletcher estimated meant 497,000 people. The top tax rate will fall only barely, from 6.0 percent to 5.8 percent, but income above $75,000 will remain taxed at the higher rate.

Mahoney said the relief for the lowest income Kentuckians was laudable and long overdue. She criticized the small tax cut for most individuals that cost the General Fund a big chunk of money that could have been used for health care, education and other programs.

The Kentucky Economic Justice Alliance estimated the highest income Kentuckians would see only $134 more in their pocket this year because of the cut.

Companies will see a relatively much larger cut in their tax rates, from 8.25 percent to 7 percent and eventually to 6 percent.

The existing corporate license tax is repealed altogether, though some companies with different legal structures will be subject to corporate tax for the first time. A raft of specific tax breaks are also granted, along with some loopholes closed.

"It definitely could have been better in terms of making corporations pay their fair share," Mahoney said.
Fletcher said companies will be more attracted to Kentucky, providing jobs and economic growth.

"This is not a short-term fix. It's a longer term fix," Fletcher said. "Economic growth doesn't occur overnight."

Mahoney said the philosophy is misguided. Improved schools, adequate health care and quality of life issues make for a healthy economy, she said.

"We just don't buy the argument that tax cuts equal economic growth," Mahoney said.

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