Sales tax exemptions are expensive

The 2010 Kentucky General Assembly goes into session this Tuesday and money will be the issue. More specifically, the lack of money and how to craft a new two-year budget with the state's coffers reeling from the economic downturn will dominate all talk. The numbers are huge and for simplicity sake, the legislature is looking at a $1 billion deficit. Lawmakers will be forced at some point between now and mid-April to decide to make drastic cuts to existing programs (state employees?) or find more money (tax increases). More than likely, some of both will be the final answer.

One of the state's primary income generators is the 6% sales tax that is applied to most goods we buy. In 2010, the state is budgeted to collect $9.1 billion from the sales tax. According to a story in Sunday's Herald-Leader, however, various sales tax exemptions will mean about $6.9 billion will not be collected this year.

Most people know Kentucky does not tax groceries or prescription drugs, but there are a wide variety of other goods that are not taxed. According to the story, the money lost to sales tax exemptions is rising about seven percent per year, and the Kentucky Dept. of Revenue won't tell what all is covered by exemptions.

As the deficit discussion grows, many are calling for "comprehensive tax reform." While that sounds good and might be a good idea, often times voters consider "tax reform" to be code for "tax increases" and that usually gives lawmakers cold feet. Perhaps another discussion could involve that list of tax exemptions and which ones make sense and which ones are simply political favors. If the exemptions total nearly $7 billion per year, my guess is a billion or so could be found.