Once again, KY plays favorites with tax incentives

Governor Steve Beshear's office published a press release today to announce $2 million in tax incentives have been granted to the Neogen Corporation in Lexington for expansion. According to the press release this expansion will create 75 new jobs.

We have pointed out time and time again: new jobs are fantastic, especially in this economy BUT if tax incentives are helping do this, the state should extend these "incentives" to ALL business and not just a few, hand-picked businesses.

What do Utah, South Dakota and Virginia have that Kentucky doesn't?

According to the soon-to-be released fourth edition of the ALEC-Laffer State Economic Competitiveness Index, Utah once again ranks as the state with the best economic outlook in the nation.

South Dakota ranks second while Virginia leaped five spots from last year to third. The bottom three consists of the usual suspects: Maine, Vermont and New York rank No. 48 to No. 50 respectively.

Until the full report becomes available on Wednesday, we won’t know for sure if Kentucky has improved from last year’s ranking of No. 40. However, if we can get any indication from former Reagan administration economist Arthur Laffer’s repeated comparisons of Kentucky with neighboring Tennessee, a region free of state income taxes, Kentucky’s odds of significant improvement are long.

The ALEC-Laffer State Economic Outlook ranking is a forecast based on level of current state spending, mode of taxation, and what the states are actually spending on. Here is a link to the 2010 report.

Urging advocates to continue the good fight against excessive state taxation, Laffer left reporters with an unexpected nod to the Rastafarian, Bob Marley: “Those who are trying to make the world worse never take a day off. How can we?”

Visit back this Wednesday for an update on Kentucky’s 2011 economic outlook.

By Phil Impellizzeri, Bluegrass Institute intern

An auto-tax robot from 1980

Okay, help me understand this:

• In 1980, Kentucky passed a law that automatically adjusted the gas tax based on the average wholesale price of gas.
• This tax goes to the Kentucky Road Fund
• The Road Fund is up 11.6% for the fiscal year
• Despite the increase in the available road funds, Kentuckians will be hit with a 1.9 cent/gallon tax increase at the pump.

Why do we have a law that automatically adjusts taxes? Perhaps this one should be reviewed, especially since the Road Fund has enough discretionary funds to hand out tax incentive favors to a handful of businesses and large recreated arks.

Quote of the day: Why local governments hurt, too

“Most states and cities in deep financial trouble all have one thing in common. They have been governed by liberal administrations, who believe in high tax rates and cozy relationships with public unions.” –Ron House, Zanesville (Ohio) Times-Recorder

Eliminate Tax Breaks on Government Debt?

If you own your home, you receive an incentive to go deeper into debt than you otherwise would if you take advantage of the mortgage interest deduction. Some people act on that incentive by buying more house. Some people extend the terms of their mortgages.

So what happens when we give a tax break to those who earn interest income on debts issued by governments? It means more people offering to buy the debt than normal which means lower interest rates than normal. Lower interest rates for borrowers usually means more borrowing.

The question is this: Why subsidize government borrowing through the tax code? After all, it's always taxpayers who are liable for bad borrowing decisions by government.

The idea of eliminating tax breaks for municipal bonds is again under consideration in Congress. It has merit.

Here's why. When the financial crisis struck, it decimated the private bond industry. Tax revenues, meanwhile, declined. Investors, seeking cover, put more money into tax-free bonds. That move into tax-free bonds effectively lowered the price of borrowing for local governments who were also strapped for cash. And in a down economy, making borrowing easier than cutting spending has obvious ramifications for your future tax bills and waste in government.

The idea is worth considering. What's more, eliminating that tax break can serve two partisan desires. It's the elimination of a tax break for big investors, something Democrats often like. It also has the benefit of compelling local governments to live within their means even in the short run, an idea attractive to fiscal conservatives.

If you take a walk, I'll tax your feet

I read today that the Obama administration is considering a working draft of a bill that would tax drivers based on how many miles they drive.

What's next? Taxing musicians based on how many notes they play? A tax based on how many square feet your gas powered mower travels when you are maintaining your property?

Reminds me of a song...

Government's 'un'fair share

According to WKU economists Steve Lile and Brian Goff, "the public sector accounts for a larger share of the KY economy than is the case of most neighboring states."

In a paper on the new WKU Center for Applied Economics Web site, Lile and Goff offer the results of their research comparing the share of government activity that consumes states' gross state product (GSP), which like the national GDP, is a leading indicator of states' economic vitality.

Of the seven surrounding states, only Virginia and West Virginia -- both of which house large federal government agencies -- exceed Kentucky in the percent of their GSPs accounted for by government.


That's one of the reasons why it's so hard to believe the claims being made by Gov. Beshear and his get-along, go-along big spenders in the Kentucky General Assembly when they say that there's no need for spending cuts immediately to deal with the ongoing Medicaid mess.

In one sense, they're right. They should have been cutting the size of government a long time ago.

Tennessee: Your difference is showing

If you check out Western Kentucky University's new Center for Applied Economics online, here's some things you will find out about the commonwealth and its economic vitality:

• Kentucky's economy relies more heavily on manufacturing than all of the surrounding states other than Indiana. The commonwealth is 59 percent more dependent on manufacturing than the national economy.
  
  
• Notice how Kentucky's growth lags behind neighboring states:

• Persistent small differences in growth rates become a big deal over time. For instance, while Tennessee only grew at a 1.4 percent rate higher than Kentucky per year between 1997 and 2008, it added up to a 16 percent gap -- or a per capita income difference of $29,000 (Ky.) and $33,000 (Tenn.) during that decade.
  
  
• Kentucky and Tennessee share 350 miles of border and are similiar in terms of size, geographical features and historical/cultural similarities. Yet Kentucky lags behind:
  
  
  • Ky's "aggregate personal income" has dropped from 86 percent of Tennessee's to 64 percent over the last 45 years.
    
    
  • Ky's per capita income has dropped from 98 percent of Tennessee's to 92 percent.
    
    
  • Ky's population has dropped from 82 percent to 70 percent of Tennessee's.
    
    
  • Between 2000 and 2005, more than three times as many people moved to Tennessee as moved to Ky. Could it be that lower tax rates, a reliance upon the sales tax rather than punitive income taxes, school choice and a right-to-work law really do have consequences?