McCoy defends votes to repeal bank franchise tax, support for gas tax hike
By CHAD MCCOY
50th District State Representative
Wednesday, May 29, 2019 — Our economy is constantly evolving, yet Kentucky’s tax code had not been substantively updated since 2005. As a result, we were over-taxing our citizens and stifling business while still not bringing in the required revenue to properly fund the necessary functions of state government. As a part of the new majority, my fellow Republicans and I have worked hard to make our tax code friendlier to job creation and economic growth.
In 2018, we made the single most significant changes in more than a decade, lowering income tax rates and the overall tax burden on Kentuckians while broadening the tax base. Those changes moved Kentucky from 33rd place to 23rd place in state tax climate. This ranking was made by the Tax Foundation, a reputable, credible and well-respected research-based national think tank that has studied state and national taxes since 1937.
In making changes last year, a glaring injustice came to light – the bank franchise tax. Kentucky was one of five states that did not charge banks an income tax but instead taxed banks on the amount of assets they kept on hand – something controlled by the federal government and not the bank. When the economy collapsed during the Great Recession and President Obama implemented additional government regulations on banks, Kentucky-owned banks were decimated. Their tax rate was an average of 92 percent higher than any other corporation or business in the state and at the highest effective tax rate of any state in that nation. Unfortunately, our local community banks ended up moving or merging with out-of-state banks to avoid this unfair, backwards tax. As a result, Kentucky lost not only $665 million in capital, but many banking jobs in the last five years due to out-of-state acquisitions. Thousands of more jobs were in danger, not to mention the community partnerships and investments our local banks make.
This year, the Republican super majority made it a priority to fix this problem, save our local banks and keep lending opportunities available to average citizens and businesses throughout the state. To do that, we moved local banks away from the bank franchise tax and instead, taxed them like all other corporations on their income – leveling the playing field for all businesses. A move that was supported by everyone in the business community.
Our tax changes over the last two years have followed the consensus of economists, who emphasize the importance of broadening our tax base and lowering rates. Nonetheless, recent editorials have attacked our bipartisan action in the 2019 legislative session to repeal Kentucky’s outdated bank franchise tax, as this unfairly high tax rate has driven $665 million in capital out of Kentucky in the last five years, along with thousands of jobs. Fortunately, large majorities of Republicans and Democrats understood that in order to keep even more jobs and investment from leaving the state, we needed to level the playing field for our small, community banks.
The editorial has more mischaracterizations.
In attacking our efforts to tax what people buy over the income they earn, the author notes that consumption taxes hurt middle and lower income people. But Kentucky gets less than 20 percent of revenue from sales taxes, whereas Tennessee derives more than 40 percent of its revenue from sales receipts. Average household income is higher in Tennessee, and their economy has grown at a much faster clip. Per capita GDP growth in Tennessee was 2.58 percent between 2006 and 2016, whereas Kentucky’s lagged at 0.3 percent.
But we believe that Kentuckians deserve better and the House Majority has proven that we are willing to take the bold actions necessary to move our commonwealth towards progress and prosperity. In broadening our tax base and lowering income taxes, we are following the Trump model that has reinvigorated our economy. And we are adjusting our tax code to the way our economy has been moving for decades – in a consumption-based direction. This approach stimulates job creation, rather than stifling it, and gives our citizens more choices in what they pay taxes on.
Somehow, this editorial also finds a way to tie the repeal of the bank franchise tax to Kentucky’s need for more gas tax revenue, when the two issues are unrelated.
GAS TAX. As I have made clear, I do support increasing the user fee on gasoline as one component of a comprehensive plan to reform the infrastructure funding formula and improve our roads and bridges. Our roads and bridges are already in poor condition. In fact, the American Society of Civil Engineers (ASCE) just awarded the state an appalling D+ and C- for road and bridge conditions respectively. Deteriorating roads cost Kentuckians an estimated $331 each year in vehicle maintenance alone. We now face the loss of significant federal funding and the historic failure to adequately invest in infrastructure will have devastating consequences
Jobs go where roads take them, and good infrastructure is essential to attracting quality jobs and economic investment in our communities. That requires increased investment, investment which will boost our economy by making it easier to exchange goods and services. Support for long-term, sustainable infrastructure funding is vast, including the Kentucky Association for Economic Development, Kentucky Chamber of Commerce, Kentucky Association of Counties, and the Kentucky Council of Area Development Districts.
Whether it be broadening the sales tax and lowering income taxes, helping grow our community banks or studying ways to better take care of our roads, I have supported conservative, pro-job policies at every turn. And in my service as your state representative, I work for you and you alone.
Rep. Chad McCoy represents Nelson County in the Kentucky House of Representatives. He is also the House Majority Whip.
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