Kentucky’s tax system sucks

127
"The greater the service, the heavier the tax" (illustration by Udo Keppler, 1872-1956, artist [Public domain], via Wikimedia Commons)

A new report from the Institute on Taxation and Economic Policy confirms what we’ve long known: Kentucky’s tax system sucks. And it’s worse now than it was a few years ago.

How bad is it? Consider a few facts:

  • If you make around $50,000 a year, you pay the highest tax rate in the state.
  • If you make less than $17,000 a year, your tax rate is higher than someone making over $400,000.
  • And our tax system actually makes income inequality worse, because we tax poor people more than we tax the wealthy. Before taxes are taken into account, the wealthiest 1% of  Kentuckians make 94 times what the poorest 20% make. After taxes, that ratio changes to 96 times as much.
    • Put that last statistic another way – For every $10 that a poor person makes, a wealthy person makes $940. Except then our tax system actually gives that wealthy person an extra $20, because {insert whatever reason you want here, because we have NO IDEA why we do that}.
Total tax load across income brackets in Kentucky (graph courtesy of ITEP)
Total tax load across income brackets in Kentucky (graph courtesy of ITEP)

I don’t know about you, but that doesn’t look like a well-designed tax system to me. In fact, it looks like it was designed by a Robber Baron from the last century. (Or by Mr. Burns.)

There’s more to the story from ITEP, which you can read here. It’s worth the read, and important. You get the picture, though: our tax system favors the wealthy, and makes income inequality worse across the board.

But now, our tax system sucks even more

As a result of the Repub tax changes in this year’s General Assembly, the regressive nature of our tax system got even worse. We lowered the income taxes on the wealthy, and we increased sales taxes (which hit the poor harder as a percentage of their income).

So guess what? Without those changes, we would have been 34th out of 50 states in terms of tax systems that make inequality worse. But, with the new tax laws, we jumped up to 25th out of 50 for having an unfair tax system! So glad we could tout THAT achievement by our legislators.

And more suckage is coming

The Gov has made it plain – he would love to scrap all income taxes and go to straight sales taxes. Of course, sales taxes are the most regressive of all, since they are not graduated according to ability to pay, so they take a bigger chunk out of the poor and middle class.

Want to know what that would look like? Take a gander at the state of Washington, which is Number One in terms of making income inequality worse. (Or, as the report states it, “Washington has the most unfair state and local tax system in the country.”)

They have no income tax, and as a result, their sales taxes are nuts high. They also allow local governments to impose additional sales taxes. As a result, the poorest 20% of their citizens pay almost 18% of their income to taxes of one kind or another. Their wealthiest citizens? Just 3%.

And if Governor Bevin and the other “we love wealthy people” legislators get their way, we are headed toward being the next Washington state.

What does a non-sucky tax system look like, then?

The report lays out four principles of a tax system that is both equitable and productive:

  • Highly progressive income tax brackets and rates. It’s a simple premise: those with more ability to pay, should pay more.
  • Targeted, refundable low-income credits. If you want to use a tax cut to boost the economy, don’t give it to the wealthy – they don’t need it, and it just goes into savings or long-term investments that may affect the economy years later. Instead, set up an Earned Income Tax Credit for people who are working and pay taxes. Why? Because that EITC is going to right back into the local economy immediately, either to pay off debt or to buy something.
  • Broad-based income taxes. In other words, get rid of the exemptions, loopholes, and other obscure tax gimmicks that benefit a few and punish the many by taking money from things like education. Sundown those suckers!
  • Higher reliance on income taxes and less reliance on consumption taxes. Not only does this approach lower the inequality of the system, it also makes the system more robust: as the economy grows, the state’s ability to support it grows as well.

We need a tax system that doesn’t suck.

It’s long past time for our state to improve our tax system. The good folks at the Kentucky Center for Economic Progress have laid out a broad and comprehensive proposal for a tax system that (a) funds our schools and public programs at the levels they need, (b) grows with the economy, and (c) lessens income inequality, rather than make it worse. It’s part of their Economic Agenda for a Thriving Commonwealth, which is an excellent guide to “what to do next” for our state.

And, about this specific report, they have an excellent analysis at the “Kentucky Together” site, which is also well worth your time.

So, it’s clear – We know what to do. We’ve known for a long time, and we’ve talked about it for a long time. It’s time to stop giving more and more tax breaks to people who don’t need them, while at the same time starving our schools, our colleges, our infrastructure, and the programs that make us a better state.

Let’s get rid of our sucky tax system, and put something in place that benefits all of us. We are a commonwealth. It’s time we acted like it.

–30–

Bruce Maples
Bruce Maples has been involved in politics and activism since 2004, when he became active in the Kerry Kentucky movement. He has been President, Vice-President, and Treasurer of the Metro Democratic Club, and has served on the Democratic Party Executive Committee in Louisville. He began blogging in 2004, and currently operates two personal blogs (BruceMaples.com and brucewriter.com). He founded Forward Kentucky in the wake of the state elections in 2015, and expanded it in the summer of 2016. He has lived in Louisville since 1992 with his wife and two sons.