Kentucky’s general fund is short $91 million, and one of the driving factors is a decline in a form of income primarily used by the nation’s wealthiest individuals.
In 2012, U.S. Congress was preparing to take the country over the “fiscal cliff” over rising debt, rising healthcare costs and spending on the wars in Iraq and Afghanistan. To reduce the deficit, President Obama proposed raising the federal capital gains tax, which largely impacted the nation's wealthiest, prompting a massive sell-off by 2013.
Kentucky’s Budget Director Jane Driskell says the 63 million-dollar difference in the forecasted individual income tax rate had a lot to do with unanticipated shortcomings in stock market trading and investments.
“Many are relating it to a change in the federal tax law related to capital gains and investments from a couple of years ago, that where the income tax claimed as a result of filers changing that two tax years ago, now this year reported less income as it related to those two categories,” Driskell said. “All states knew of this change, and they made adjustments in their revenue estimates, but it was a much larger impact nationwide than states planned for.”
Capital gains are classified as income earned from investments like those made in the stock market.
Driskell says there is no need for a special legislative session to address the shortfall. Governor Steve Beshear could issue a budget reduction order to balance the state’s coffers.