Lexington Herald-Leader

February 28, 2008

Tax Credit for Families Proposed

Would be paid for by broadening Estate Tax

By John Stamper

With the clutch grinding in her 10-year-old car, Kim Stinson-Hawn of Berea travels to schools and child care centers in five counties for her part-time data-collection job.

The 38-year-old mother of two young daughters, whose husband is a non-traditional college student, epitomizes the 350,000 low-income Kentucky families who would get tax breaks under a bill approved Wednesday by the House budget committee.

"If this bill passes, the tax credit would go towards fixing the clutch in my car, which I need to help me keep my job," Stinson-Hawn told lawmakers. "There are so many needs and challenges that families like mine face."

House Bill 566, sponsored by Democratic Rep. Jim Wayne of Louisville, would create a state earned income tax credit on Jan. 1, 2009 that is projected to pay out about $45 million a year.

To fund the program, the proposal broadens the state's estate tax, making it applicable to estates worth $3.5 million or more. Family farms would be exempt from the tax.

Wayne said the broadened estate tax would likely apply to fewer than 350 Kentuckians each year.

Committee chairman Harry Moberly, D-Richmond, said the bill is revenue-neutral for the state and thus shouldn't be considered a tax hike. Money generated by the state's estate tax, which mirrors the federal estate tax rate, has withered in recent years as Congress attempted to repeal the tax through a gradual reduction.

"It's really a philosophical question: Do you want to tax estates over $3.5 million to give this credit to working people," Moberly told the committee.

The tax credit would equal 7.5 percent of the federal earned income tax credit received by the family. In 2004, 337,492 Kentucky tax filers claimed $600 million in earned income tax credits from the federal government. The average federal tax credit was $1,776.46.

The state tax credit would be available to low-income Kentuckians, which for a family of four, would include those with an income of $39,700 a year or less.

The bill passed overwhelmingly, with minor opposition from some Republicans.

Rep. James Comer, R-Tompkinsville, voted against the bill because "the responsibility of redistributing wealth is not one of the roles that I believe, as a conservative, that a government should play."

Rep. Jimmy Higdon, R-Lebanon, abstained.

The bill now goes to the full House, where it will likely face opposition from at least one key Democrat.

House Speaker Jody Richards, D-Bowling Green, said he doesn't support broadening the estate tax --whether the additional money is used for an earned income tax credit or to help offset the $165 million in budget cuts proposed in next year's budget by Gov. Steve Beshear.

"Other states have these same kind of (estate tax) exemptions and I'm afraid if we don't we'll run some of our wealthiest folks out of state," Richards said.