Kentucky’s “New” Economy
By Kris Kimel
One can debate the term used to define today’s “new” economy, but however you chose to define it one thing is clear: it is real and is reshaping the very nature of economic competition and success. Historically, Kentucky, like many of its Southern neighbors, competed primarily on the basis of geographic location and the supply of relatively inexpensive land, labor, and natural resources. In the 21st century one competes on the basis of knowledge, innovation, and speed. This translates into being smarter, more productive, and more creative than one’s global competitors.
Despite recent progress Kentucky has yet to develop the foundation and conditions to build a modern competitive economy. In many respects we have been caught off-guard by the sweeping economic, social, and technological changes that are restructuring the global marketplace. The state lags dangerously behind most other states in such critical areas as education, research and development (R&D), and new high-growth firms. For example, a just-released national economic report on the states showed Kentucky ranking 46th in college attainment, 48th in federal R&D, and 46th in new companies. Kentucky’s economy is not properly structured, sufficiently diversified, or dynamic enough to trigger the kind of economic activity necessary to grow, retain, and recruit the type of innovation-driven companies and jobs that are so essential to our future. We need a system that is structured to support an entrepreneurial economy geared to create new Kentucky companies and good paying jobs built on Kentucky know-how, talent, and innovation.
The solutions to this challenge are many and interrelated. But the restructuring and modernization of our tax and revenue system is an essential piece of this puzzle. In many respects Kentucky’s tax structure reflects the conditions of a bygone era….predicated on obsolete rules and conditions. In this high-speed world based on knowledge, innovation, and entrepreneurial companies we need a tax structure that is built around the factors that drive this type of growth…one that is broad based, attractive to innovation-driven businesses, knowledge workers, and investments. Also it needs to be a system that is framed around the competitive realities of 21st century based economic growth.
Governor Fletcher has admirably tackled this very difficult challenge and in doing so has begun taking and proposing steps to reshape Kentucky’s economic and tax system. Proposed changes that expand the tax base, reduce the top corporate and individual income tax rate, eliminate particular tax loopholes, and create a more realistic definition of a business entity are all critical aspects in the quest to modernize Kentucky’s economy.
Every day that we delay in aggressively tackling the Commonwealth’s tax and economic deficits is another day in which we risk losing good paying jobs and the hopes that our children will have a strong local economy in which to participate.
Clearly the proposed tax changes are not the end of the modernization process in Kentucky, as Governor Fletcher has acknowledged on numerous occasions. In fact, keeping our economy dynamic and growing will involve an ongoing process of change not only involving our tax system, but education, technology development, risk capital and entrepreneurship as well. But as the ancient Romans were fond of saying “…to start is half the deed.” Modernization of our tax system is a critical and overdue part of the starting point in our states economic future.