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Tax package clears Ky. House; Senate fate unknown

FRANKFORT, Ky. (AP) - The Kentucky House, divided largely along
party lines, quickly endorsed a revenue package Thursday aimed at
raising more than $300 million over two years to help fill a gaping
shortfall in the next state budget.
Just one day after the tax code measure cleared a key committee,
the House voted 64-36 to pass the legislation - sending it to an
uncertain future in the Senate.
Every Democrat except two supported the measure. Republicans
voted in lockstep against it with one exception. The proposal would
not raise tax rates, relying on such steps as suspending a business
tax break, accelerating sales tax collections and capping some tax
credits.
Supporters said it's needed to plug a shortfall exceeding $1
billion for the next two-year state budget cycle, which begins July
1.
Without it, they said, the alternative would be painful cuts to
education and human services. State agencies already hit hard by
past budget cuts would be in the crosshairs again.
"We have offered this as a solution ... to keep us from facing
that catastrophic budget cut that would set this state back for
many years," said Rep. Harry Moberly, D-Richmond.
The proposed tax change drawing the most attention would
temporarily suspend tax write-offs for businesses reporting losses.
The proposal would generate an estimated $72 million in the first
year of the next budget cycle and $90 million in the second year.
Affected businesses would still be able to eventually claim
those losses for tax purposes.
Republicans called it a tax increase that's ill-timed during a
period of high unemployment and lackluster corporate income tax
collections in Kentucky.
"This is just going to be one more punch to help knock these
small businesses and big businesses out of Kentucky," said Rep.
Bill Farmer, R-Lexington.
The write-off suspension is meant to last two years, but top
House Democrats said the tax benefit could be restored in the
second year if state revenue collections improve.
Rep. David Osborne, R-Prospect, said he's worried that many
struggling businesses "do not have time for a deferment" on the
tax write-off.
Moberly countered that the proposal is a tax suspension, not a
tax increase. He said the write-off generally benefits large
companies with multiple subsidiaries.
The bill's other big-ticket item - the acceleration of sales tax
payments - would bring in an estimated $90 million in the second
year of the budget.
Opponents said that provision would put an extra burden on small
businesses.
Rep. Jim Wayne, D-Louisville, had starkly different reasons for
opposing the measure. He said the plan failed to make Kentucky's
tax code fairer and would fall short of providing the stable
revenues needed to tackle the state's many social ills.
House Democratic leaders haven't released details of their state
spending proposal, but have signaled it relies on spending cuts,
tax code changes and other steps to balance the budget.
House Minority Floor Leader Jeff Hoover, a Jamestown Republican,
questioned whether the budget proposal would include a sizable
balance at the end of the biennium. He said the excess money could
allow for "pet projects" for some lawmakers.
Rep. Rick Rand, chairman of the House Appropriations and Revenue
Committee, said the spending bill would include provisions meant to
create jobs.
"That's what this state needs," he said. "We need confidence
back in our consumers."
House Speaker Greg Stumbo said House budget writers were looking
at achieving $30 million in savings through a reduction in
non-violent state prisoners over the coming two years.
Top House Democrats have described a spending plan that would
not raise salaries for teachers and state employees. It calls for
reductions in government contracts and non-merit positions across
state government. House leaders have also talked of revising state
health insurance offerings as a potentially big cost saver for the
state.
It includes eliminating two instructional days in public
schools, a move projected to save about $34 million each year. And
higher education has been targeted for cuts, though House
Democratic leaders have been trying to soften those reductions.
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The legislation is House Bill 530.

(Copyright 2010 by The Associated Press. All Rights Reserved.)


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