Kentucky Passes $100M Tax Cut For Banks As State’s Pension Fund Goes Unfunded
Kentucky lawmakers passed a bill on Wednesday that will drop state revenue by $105 million, even as the state faces a $37 billion pension debt — and banks will receive the bulk of the benefit, according to the Lexington Herald-Leader.
Sen. Chris McDaniel, R-Taylor Mill, said Kentucky is in a tough spot: their banks are paying the highest tax rate in the country, leading more than three dozen to leave the state, but the pension debt is sucking the coffers dry.
“It does create a challenge,” he said. “The fact is, the pension contribution is eating every other aspect of state government out. But at the same time, if we become economically uncompetitive with our tax policy, 65 percent of our people and business sit on a border... If we begin to lose our jobs, our businesses and the tax base that comes with those, we will find ourselves uncompetitive in the long run.”
The Herald-Leader said that “Kentucky uses a formula that taxes banks based on the capital they have on hand called the bank franchise tax,” and with the passage of the Dodd-Frank Act in 2010, those banks now have to keep more capital on hand.
Monies collected through the bank franchise tax climbed from about $70 million in 2010, before Dodd-Frank, to about $90 million in 2011. For the past five years, the number has held steady around $100 million.
The new bill will see banks pay corporate income taxes instead.
House Speaker David Osborne noted during a speech on the House floor that “37 Kentucky banks have left the state in the past five years because they were taxed too high.”
Senate Minority Floor Leader Morgan McGarvey, D-Louisville, agreed, saying the bill will not affect big banks, like J.P. Morgan Chase but rather the smaller community banks that are struggling to keep up.
“This does not apply to the big banks as I understand it. It does not go to a J.P. Morgan Chase or a PNC. The way these banks work, these community banks, if you’re a Kentucky chartered bank you’re subject to what is the highest tax rate of any community bank system in the country.”
But Kentucky also faces a pension crisis: “Some of the state’s universities and local health departments, mental health/mental retardation boards, state-administered retirement systems, domestic violence shelters, rape crisis centers and child advocacy centers, are facing the prospect of bankruptcy because of higher pension contributions expected by the state.”
In response, the Senate has a bill that will allow such organizations to opt out of the Kentucky Retirement Systems and enter into a payment plan to pay back the money they owe for current employees, the Herald-Leader said.
Those payment plans could last up to 50 years, and a recent analysis of the state’s retirement system showed the plan could cost Kentucky $1 billion.