KY Policy Blog

Revenue Recovery from Great Recession is Slow

By Jason Bailey
March 20, 2013

The debate over pensions in Frankfort hinges in part on whether the state should raise additional revenue to help make the pension payment or dig into the rest of the budget to find the funds. The weakness of the current economic recovery is one reason more revenues simply must be generated.

Just how slow is our recovery from the Great Recession? The figure below compares revenue growth in inflation-adjusted General Fund dollars after the current recession and after the last recession in 2001. The 2001 recession was not nearly as read more

Gambling Revenues Are No Substitute for Tax Reform

By Jason Bailey
February 27, 2013

The House has proposed generating new revenues for the state pension system by expanding the lottery and utilizing revenues from instant racing. However, the plan generates only a portion of the funds needed to make the annual pension payment, while gambling revenues tend to grow slowly over the long-term. If such a proposal advances, it should not replace the need for state tax reform that generates additional and sustainable revenues.

According to the speaker’s February 26 presentation on the proposal, the House does not expect these new gambling options to read more

Income Tax Cuts No Way to Grow Small Businesses

By Anna Baumann
February 27, 2013

The claim that cutting state income taxes is an effective strategy to help small businesses create jobs is discredited in a new report released by the Center on Budget Policy and Priorities (CBPP).

The report shows that state personal income taxes have an insignificant effect on small business job creation. And by taking resources away from critical services like education, income tax cuts could harm a state’s ability to grow an entrepreneurial economy. CBPP notes that:

Taxable income for small businesses is typically modest enough that even a full repeal read more

Penny Increase in Sales Tax Would Worsen Tax Fairness and Fail to Fix Long-Term Revenue Problem

By Jason Bailey
December 17, 2012

A couple of legislators have floated the idea of raising the sales tax by one percentage point rather than taking action on a tax reform package. But such a plan would make Kentucky’s tax system less equitable while doing nothing to address the fundamental challenge of long-term revenue growth.

Increasing the sales tax would be a very regressive approach, meaning that it would impact low- and middle-income Kentuckians more than those with higher incomes. Research by the Institute on Taxation and Economic Policy (ITEP) shows that the poorest 20 percent read more

Tax Commission Recommendations Raise Needed Revenue but Include Big Corporate Tax Cut

By Jason Bailey
December 11, 2012

The new plan from the Governor’s Blue Ribbon Tax Reform Commission rightly puts the first priority on raising needed revenue to address Kentucky’s budget challenges. The commission finalized a package that raises approximately $659 million in the first year and closes various holes in the tax code that are limiting the pace of state revenue growth.

The most important changes involve strengthening the individual income tax. After much debate, the commission made the right decision in choosing to maintain a graduated income tax after pressure from some commissioners to move read more

Arguments to Cut Income Tax Miss Context and Ignore Tax’s Benefits

By Jason Bailey
October 17, 2012

Those arguing for a shift toward sales taxes and away from income taxes in Kentucky overstate the influence of income taxes on where people live. And they overlook the benefits of income taxes, including how they improve tax fairness and drive long-term revenue growth.

One argument, which comes up in the consultants’ report to the governor’s tax reform commission, concerns location decisions along Kentucky’s border regions. Since close to half of the Kentucky population lives close to a state border, there are more opportunities for individuals to choose which state read more

What Would Kentucky Gain from More Business Tax Cuts?

By Jason Bailey
October 10, 2012

For a state like Kentucky—with high levels of poverty, low wages and too few jobs—a perpetual issue is how government can do more to promote prosperity. For years, the state has focused heavily on reducing business taxes and providing special tax incentives with the hope of attracting industry.

In truth, business tax cuts are not a formula for long-term economic development. Yet a focus on that strategy continues in the recently-released consultants’ report to Governor Beshear’s Blue Ribbon Tax Reform Commission.

The report argues that Kentucky needs to improve its read more

Taxing Groceries Not a Good Strategy for Kentucky

By Ashley Spalding
October 1, 2012

The recently released consultants’ report to the governor’s tax reform commission included the option of applying Kentucky’s sales tax to food for home consumption (i.e., groceries). While broadening the tax base is an important strategy to raise and sustain revenue, a tax on groceries would make Kentucky’s tax system less equitable. And because groceries are a shrinking portion of what people consume, it could worsen Kentucky’s long-term revenue problems.

Kentucky applied the sales tax to groceries until 1972 when it exempted them for tax fairness reasons. As a share of read more

Senior Tax Breaks Don’t Attract Migrants

By Jason Bailey
June 1, 2012

Those arguing for state income tax cuts often claim that such cuts will result in the relocation of large numbers of people from other states, but the economic evidence simply doesn’t support those claims. As a recent survey of the research showed, people don’t migrate much in general, and those that move do so largely for family reasons or because they are attracted by quality of life, housing costs, job opportunities or weather—not taxes.

One variant on this claim is that tax cuts for seniors will make a state a read more

What Are Taxes For?

By Ashley Spalding
April 13, 2012

Tax Day is an important time for Kentuckians to consider the role of government in our state and nation. Taxes are a critical tool for doing things together that we cannot do alone. They support investment in education, health care, infrastructure, social services and other public structures essential for the common good in Kentucky.

These days, taxes are the subject of great controversy. But the investments paid for by tax dollars play a unique role in: advancing economic development; contributing to improved health and safety; creating educated workers and citizens; read more