Changes to Medicaid Waiver Request Move Further in the Wrong Direction

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Last August, Kentucky applied to modify its Medicaid program through a request to the federal government to waive certain requirements of the law, known as an 1115 waiver. 1 As explained in our comments at the time, the proposed changes would result in fewer Kentuckians covered and therefore decreased access to health care, which would ultimately harm health and move the state backwards. 2  While the waiver proposal is framed in terms of increased financial sustainability and reduced costs, it would likely increase costs for the state as it introduces new, expensive and complex administrative burdens, and limits access to the preventative care that improves health and keeps costs down in the long run. Rolling back Kentucky’s historic gains in health care coverage would hurt the many Kentuckians who benefit from the state’s Medicaid program in its current form and act against the goals of the Medicaid program as a whole and the 1115 waiver in particular.

With the recent modification of the original waiver request comes added barriers to getting and using Medicaid coverage. By jumping from a 12 month phase-in of the community engagement component to an immediate 20 hour per week requirement, the enrollment losses would be even more severe. And by enforcing a reporting requirement on income changes with a six-month lock out for non-compliance, the program would penalize enrollees simply based on the nature of low wage work. These changes intensify the harms of an already counterproductive waiver.

Work Requirement Is Misguided and Harmful — and Change Makes It Worse

The original waiver request required a community engagement requirement that made eligibility for Medicaid coverage conditional on 20 hours a week of some work-related activity. This minimum hourly work requirement was to be ramped-up over a period of 12 months, but the operation modification changes that to an immediate 20 hour mandate. Embedded in the work requirement is the assumption that people covered by Medicaid are not working, or would be encouraged to increase their work by the requirement, with the goal of having their incomes rise above the level that makes them eligible for Medicaid. This assumption is wrong-headed, as it ignores the reality of low-wage work and the barriers to improved employment.

Most Medicaid enrollees who can work do work

In Kentucky, the majority of Medicaid expansion enrollees currently work, and four out of five adult Medicaid expansion enrollees have worked at some point in the past five years. 3 The Kaiser Family Foundation estimates that 51 percent of Kentucky Medicaid-covered adults currently work, and 66 percent come from a family where at least one person works. 4

Of those who do not work, most are ill or disabled, taking care of a loved one, or are in school or retired. Kaiser estimates that, nationally, all but 4.5 percent of Medicaid-enrolled adults are working or meet one of those criteria. Of the 4.5 percent who either do not work or have a good reason not to, 3.3 percent are looking for work and just 1.2 percent are not.

Work requirements ignore the nature of low-income work

hours, sometimes below 20 hours per week. In fact, according to 2015 Census data, 1 in 5 non-elderly Kentucky adults whose incomes qualify them for Medicaid work less than 20 hours per week. 5 As of 2015, the three industries that employed the most Medicaid expansion-eligible adults in Kentucky were restaurants, construction and department stores, all of which often provide only part time and sometimes irregular work opportunities. 6

Estimates from the Kaiser Family Foundation mentioned above showed, nationally, 41 percent of Medicaid-covered adults work full time and 18 percent work part time. Low-income workers often are forced to work fewer hours than they would prefer. According to the Department of Labor, over 5 million Americans work part time involuntarily and would work more if their place of work offered more hours or they could find full time jobs.7

Work requirements do not promote long-term employment or reduce poverty

An established body of research shows work requirements do not reduce poverty or succeed in helping people obtain long term, permanent employment. 8 Among those who received cash assistance through the Temporary Assistance for Needy Families (TANF) since its creation in 1996, work requirements have not yielded long-term results. One review of 13 randomly assigned studies showed a work requirement resulted in a short-term increase in employment, but employment outcomes faded after 2 years and the requirement didn’t have any effect on employment 5 years afterward. In fact, the study showed most participants were not employed 75 percent or more of the time, 3 to 5 years out from their participation in TANF-required work activity. 9 The communities that have shown significant long-term employment effects through a program that required work as a condition of eligibility were in Portland, Ore., and Riverside, Ca.. In those communities program administrators offered significant work supports and training, and encouraged participants to hold out for better jobs with higher wages that offered more opportunity for advancement.

Most individuals subject to work requirements remain in poverty, and in some cases become poorer. An evaluation of 11 programs that offered cash assistance and SNAP (formerly known as food stamps) showed that the percent of TANF participants living in poverty in the observed communities didn’t change 2 years after participation, and the percent living in deep poverty (half of the poverty level or less) increased in 6 of the 11 communities. 10

Work requirements are ineffective as a condition of eligibility for public benefits because they do nothing to change either an individual’s job qualifications, ability to afford job training and education or the existence of decent job opportunities in the labor market in which he or she is trying to navigate.

Work requirements would result in decreased enrollment

In the recent request to add a work requirement nearly identical to the one Kentucky has proposed, the Indiana Family and Social Services Administration estimated that a quarter of those for whom a work requirement would apply would lose coverage due to non-compliance. 11 Assuming our state’s Medicaid population is similar, this requirement alone could lead to roughly 100,000 people losing coverage because they would not be able to meet the requirement for various reasons.

Those reasons do not have to do with a lack of motivation, or a desire to “free-load” as some have suggested, but are due to a struggling labor market. Between 2009 and 2017, 32 Kentucky counties saw the total number of jobs decline 10 to 32 percent. Roughly 3/4 of Kentucky counties saw either modest job growth of less than 10 percent or a decline in jobs during that time frame.12 A depressed labor market in much of the state, barriers to gainful employment or advancement like criminal records and poor health, and a lack of income supports and adequate wages are primarily what is holding back unemployed and underemployed Medicaid enrollees from better economic mobility. 13

Removing the ramp-up for community engagement hours would exacerbate the damage

By eliminating a 12 month ramp-up for community engagement and instead requiring an immediate 20 hour per week activity related to work, the state would be enforcing a mandate without any opportunity for participants to adjust to it. Although the waiver amendment request includes a three month delay in the requirement, primarily for first time enrollees, enrollment would decline even more substantially than under the original waiver. In the estimate provided within the public notice section of the operational modifications document, it is estimated that 9,048 more people would lose coverage than under the original waiver request. A total of 96,687 would lose coverage by the 5th year. According to the estimate, people would lose coverage “for a variety of reasons, including program non-compliance.” In other words, rather than strengthen and expand coverage for low-income individuals, as is the first of four criteria for an 1115 waiver, these changes do the opposite.

 

Locking Out Medicaid Enrollees for a Failure to Report Changes in Income Is a Penalty for the Nature of Low-Income Work

There is already a requirement that enrollees report changes in wages that bump them over the income eligibility threshold. But the proposed change penalizes a failure to report a much larger number of changes, with failure to comply resulting in a six month lockout from the program. Now changes that must be reported include changes in income that affect thresholds to pay different levels of premiums (25, 50 and 100 percent of the Federal Poverty Level), changes in an employer’s health insurance offerings and premium costs, and changes in work-related hours per week. This requirement punishes people solely on the volatile nature of low-wage work.

Medicaid workers work in industries with instable hours and income

As mentioned previously, Kentucky workers covered by Medicaid work in jobs with irregular hours and inconsistent wages. This is especially true for the three industries with the largest Medicaid populations: restaurants, construction and retail. In retail, hours change weekly or even day-of; restaurant workers depend on tips, which vary greatly, especially when shared; and construction work is seasonal and often depends on weather conditions as well as the location of construction projects.

Low-wage workers face a number of challenges that would make this reporting requirement onerous. According to the Center for Law and Social Policy, many low-income workers are employed in jobs that have:

  • Inadequate hours.
  • Highly variable hours on a weekly basis.
  • Little advance notice of shifts, including being sent home early or called in right before a shift begins because of growing use of management strategies like “just-in-time” scheduling.
  • Split shifts or on-call shifts. 14

In each of these cases, wages and hours would vary on a week-to-week basis. But the waiver modification states such changes would have to be reported to the cabinet within a 10 day period. This would be burdensome for both the enrollee and the state, and would almost certainly result in people churning on and off Medicaid and higher administrative burden.

Locking out Medicaid enrollees for a failure to report income would increase churn and disrupt care 

As already mentioned, given the highly variable work schedules and income of Medicaid-covered workers, it is very likely many Medicaid enrollees will become locked out of coverage. That results in one of two things: Either enrollees would decide to go without coverage and forgo needed care, or they would seek out a financial or health literacy class so they can re-enroll. In either case, this would be burdensome for the state and disruptive for the individual.

People already churn in and out of Medicaid in Kentucky at a high rate. Between 2012 and 2013, 19 percent of the Medicaid population changed eligibility status. 15 Each time someone’s eligibility status changes it requires administrative action. The prospect of a large number of people becoming locked out of Medicaid and then moving back on, potentially the same day, multiple times a year would dramatically increase the administrative cost and burden for the state.

In addition, disruptions in care could have very serious consequences for individuals with chronic conditions. According to a study from the Harvard School of Public Health, 72 percent of Medicaid expansion-eligible Kentuckians have 1 or more chronic conditions. 16 The study also found a substantial increase in the number of low income Kentuckians with a primary care physician and getting regular care for chronic conditions, thanks to Medicaid expansion. The waiver will cause more of these people to cycle on and off coverage, reducing health and costing the state more in the long run as conditions that might not have worsened become more expensive to treat.

Build on Kentucky’s Health Care Successes – Don’t Undermine Them

Kentucky has made historic progress in health care, primarily through our decision to expand Medicaid. Several studies have shown that multiple measures of health access and outcomes have improved since 2014:

  • The number of uninsured Kentuckians dropped by more than half.
  • Screenings for cancer, diabetes and dental issues have risen dramatically.
  • The number of people with a primary care physician and who are receiving regular care for a chronic condition have increased.
  • Preventable hospitalizations for problems like hypertension and asthma have dropped.
  • Breast cancer deaths and infant mortality have declined.
  • There is an increase in Medicaid expansion-eligible Kentuckians who report having excellent health. 17

The 1115 Medicaid waiver process exists to demonstrate innovations in health care coverage and delivery that move us forward. In spite of our unparalleled gains in health, this process could be used to make even more improvements. In fact the goals of an 1115 waiver, according to the Centers for Medicaid and Medicare Services are:

  1. Increase and strengthen overall coverage of low-income individuals in the state.
  2. Increase access to, stabilize and strengthen providers and provider networks available to serve Medicaid and low-income populations in the state.
  3. Improve health outcomes for Medicaid and other low-income populations in the state.
  4. Increase the efficiency and quality of care for Medicaid and other low-income populations through initiatives to transform service delivery networks.

But the waiver request does not meet these standards, as we described in our prior comments, and those failures are worsened by the most recent round of modifications. The new barriers to coverage, administrative complexity and reduced benefits are in direct conflict with what a demonstration waiver should do.

Forcing people off health care coverage based on the nature of their work and the current state of the labor market impedes that progress and would ultimately harm our communities. We urge the state to abandon these changes and work with stakeholders across the commonwealth to shape our Medicaid program in a way that builds on, rather than rolls back, our successes.

  1.  “Kentucky Health,” Kentucky Cabinet for Health & Family Services, August 15, 2015, http://chfs.ky.gov/NR/rdonlyres/69D38EB6-602F-4707-933C-80D5AAE907F7/0/KYHEALTHWaiverFINAL.pdf.
  2.  Dustin Pugel & Jason Bailey, “Proposed Medicaid Waiver Would Reduce Coverage and Move Kentucky Backward on Health Progress,” Kentucky Center for Economic Policy, October 7, 2016, http://kypolicy.org/dash/wp-content/uploads/2016/07/1115-Medicaid-Waiver-Federal-Comments-KCEP.pdf.
  3.  Dustin Pugel, “Many Kentucky Workers Have Gained Insurance through the Medicaid Expansion and Are Now at Risk,” Kentucky Center for Economic Policy, December 8, 2016, http://kypolicy.org/many-kentucky-workers-gained-insurance-medicaid-expansion-now-risk/.
  4.  Rachel Garfield, Robin Rudowitz & Anthony Damico, “Understanding the Intersection of Medicaid and Work,” The Henry J. Kaiser Family Foundation, February 17, 2017, http://www.kff.org/medicaid/issue-brief/understanding-the-intersection-of-medicaid-and-work/.
  5.  Data are from the 2015 American Community Survey one year estimates for Kentucky adults under 64 years old who earn less than 139% of the Federal Poverty Level.
  6.  Pugel, “Many Kentucky Workers Have Gained Insurance through the Medicaid Expansion and Are Now at Risk.”
  7. Data are from the Current Population Survey’s June 2017 estimate for workers in nonagricultural industries who worked part time for economic reasons. https://www.bls.gov/webapps/legacy/cpsatab8.htm.
  8. LaDonna Pavetti, “Work Requirements Don’t Cut Poverty, Evidence Shows,” Center on Budget and Policy Priorities, June 7, 2016, https://www.cbpp.org/sites/default/files/atoms/files/6-6-16pov3.pdf.
  9.  Jeffrey Grogger & Lynn A. Karoly, Welfare Reform: Effects of a Decade of Change, Harvard University Press, 2005.
  10.  Stephen Freedman et al., “National Evaluation of Welfare-to-Work Strategies: Two-year Impacts for Eleven Programs,” Manpower Development Research Corporation, June 2000, http://www.mdrc.org/publication/evaluatingalternative-welfare-work-approaches.
  11.  “Amendment Request to Healthy Indiana Plan (HIP) Section 1115 Waiver Extension Application,” Indiana Family and Social Services Administration, July 20, 2017, https://www.in.gov/fssa/hip/files/HIP%20Amendment%20(Update%207_20).pdf.
  12.  Jason Bailey, “Job Recovery for Some Kentucky Counties, Second Recession for Others,” Kentucky Center for Economic Policy, May 15, 2017, http://kypolicy.org/job-recovery-kentucky-counties-second-recession-others/.
  13.  Jason Bailey, “Address Declining Workforce through Job Creation and Work Supports,” Kentucky Center for Economic Policy, July 11, 2016, http://kypolicy.org/address-declining-workforce-job-creation-work-supports/.
  14.  Jessica Gehr, “Doubling Down: How Work Requirements in Public Benefit Programs Hurt Low-Wage Workers,” Center for Law and Social Policy, June 2017, http://www.clasp.org/resources-and-publications/publication-1/Doubling-Down-How-Work-Requirements-in-Public-Benefit-Programs-Hurt-Low-Wage-Workers.pdf.
  15.  Anita Cardwell, “Revisiting Churn: An Early Understanding of State-Level Health Coverage Transitions Under the ACA,” National Academy for State Health Policy, August 2016, http://nashp.org/wp-content/uploads/2016/08/Churn-Brief.pdf.
  16.  Benjamin D. Sommers, Bethany Maylone, Robert J. Blendon, E. John Orav & Arnold M. Epstein, “Three-Year Impacts Of The Affordable Care Act: Improved Medical Care And Health Among Low-Income Adults,” Health Affairs, May 17, 2017, http://content.healthaffairs.org/content/early/2017/05/15/hlthaff.2017.0293.
  17.  Dustin Pugel, “New Report Highlights Kentucky’s Gains in Care and Health,” Kentucky Center for Economic Policy, March 17, 2017, http://kypolicy.org/new-reports-highlight-kentuckys-gains-care-health/.

Year-End Revenue Results Underscore Need for Right Actions on Tax Reform

Kentucky ended the 2017 fiscal year with $138.5 million less in General Fund revenue than economists predicted would be collected. The shortfall puts slightly more pressure on investments in our schools, universities and community colleges, health and human services and other building blocks of Kentucky communities. And its details reinforce the need to generate more revenue in ways that will work.

Total General Fund receipts in FY 2017 totaled $10.5 billion. Receipts did grow compared to FY 2016 by $138.9 million (1.3 percent), but the forecast predicted twice as much growth (2.7 percent). In general, year-over-year revenue growth is to be expected and has been the case historically in Kentucky, with total General Fund receipts growing 8 out of the last 10 years despite a major recession from which we’re still recovering.

A shortfall occurs when actual revenue does not meet the revenues estimated by the Consensus Forecasting Group. Those estimates are based on past revenue performance of the various taxes and fees levied by the commonwealth, and a review of general economic conditions in Kentucky and the nation. The estimates against which 2017 revenues are compared were made in late 2015. To put the shortfall in context, the amount actually generated is only 1.3 percent less than was predicted, which, given the length of time and number of factors considered, is pretty close. The governor has the ability to address the shortfall through a reduction plan that includes an already-ordered cut to agency spending of 1 percent, transfer of unspent funds and use of up to $59 million from the already-modest rainy day fund.

Even though the estimates were close and the deficit is not large, when considered in the context of Kentucky’s overall fiscal health, the shortfall underscores the inadequacy of our current tax structure to meet the needs of the commonwealth. We simply do not have the resources necessary to pay down the state’s unfunded pension liability, meaningfully respond to the opioid addiction or child protection crisis or recover from 16 rounds of budget cuts since 2007.

Kentucky’s main revenue sources – the individual income tax and the sales and use tax which comprise 41.9 percent and 33.2 percent, respectively, of total General Fund revenue in 2017 – both underperformed and contributed to the shortfall. The individual income tax was 0.4 percent below predictions and sales tax receipts were 1.5 percent lower than expected.

When comparing the overall strength of the individual income tax and the sales tax over time, it is important to note that since 2007, the individual income tax has grown by 44.5 percent while the sales tax has only grown 23.7 percent. The relative strength of the income tax showed up this year as well, as income tax receipts grew by 2.6 percent and generated $112 million more than the year before, while the sales tax grew by only 0.7 percent and generated $23 million more than 2016.

A major reason for the stronger growth in the income tax – which is more progressive (people with more income generally pay a larger share of their income in taxes than low- and middle-income people do) – is that it better aligns with the rapid income growth at the top in today’s increasingly unequal economy. The sales tax, on the other hand, asks more of middle and low-income people who have not seen their income or their purchasing power grow in decades. The sales tax also suffers from a relatively narrow base because it doesn’t generally apply to services, a faster growing sector of our economy.

Other revenue sources also contributed to lackluster overall growth in receipts: corporate income taxes, which are inherently volatile, fell 5.5 percent relative to 2016 and brought in 14.1 percent less than predicted. In fact, at $81.9 million less than was forecast, corporate income taxes were the largest nominal contributor to the shortfall. Factoring limited liability entity taxes (which businesses also pay) into corporate income taxes, these receipts grew by 1.8 percent compared to 2016 but underperformed estimates by 7.5 percent. Coal severance revenue fell for the 6th consecutive year to just a 1/3 of 2012 receipts, and cigarette taxes fell by 1.3 percent since last year.

Later this month, the state will close out the expenditure side of the budget and we will have an overall picture of where we stand fiscally. Later this year, in preparation for the 2018 budget session, the Consensus Forecasting Group will begin developing revenue estimates and agency heads will develop budget proposals for the 2018-2020 biennium. In addition to these processes moving forward, the governor has indicated that he plans to call a special session to address tax reform and pension reform – all further opportunities to examine Kentucky’s fiscal health.

As legislators consider the needs of the commonwealth and the ability of our tax code to generate sufficient revenues to meet them, the shortfall for 2017 should serve as a warning. Cutting income taxes for those at the top and shifting to heavier reliance on slower-growing sales taxes – which some Kentucky’s leaders are falsely promoting as a solution to not only budgetary but also economic woes – would deepen the fiscal challenges we face today. The real solution lies in cleaning up expensive special interest tax breaks that provide little to no benefit to the commonwealth. Real tax reform wouldn’t prevent shortfalls, but it would greatly improve the context in which they must be addressed.

Taxing Groceries in Kentucky Would Hurt Low-Income Families, Weaken Revenue Growth

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Governor Bevin has said he will propose tax reform in a special session this year that will move Kentucky toward a “consumption-based” tax system – in other words shifting from income taxes to greater reliance on sales taxes. One of the options for doing so would be to expand the state’s sales tax base to include groceries. But a tax shift package that includes groceries would make Kentucky’s tax system more upside-down – asking more of those with less – and would further reduce our lagging rate of revenue growth, putting needed investments in our communities at even greater risk.

Repeal of Grocery Exemption Would Ask More of Low-to-Middle Income Families

Since 1972, Kentucky has exempted food purchased for home consumption from the sales tax at an estimated cost of $700 million in fiscal year 2017. 1 Food purchased in restaurants and “to-go” and “take-out” items are taxed.

Reapplying the sales tax to groceries would be highly regressive, meaning it would cost people with low incomes a much larger share of their income than wealthier people. That’s the case for two reasons. First, sales taxes themselves are regressive. In Kentucky, the poorest 20 percent pay 5.5 percent of their income in sales and excise taxes, while the richest 1 percent pay only 0.8 percent. 2 The reason for this disparity is that people with less income, out of necessity, typically spend most or all of their income to make ends meet. Those with higher incomes are able to save a portion of their earnings – and those savings are not subject to sales taxes.

The second problem is that grocery taxes themselves are an especially regressive form of sales taxes. Rich or poor, everyone has to eat. Compared to other goods, there’s less a family can do – buying lower-priced items and less quantity – to cut grocery costs. Therefore, low-income families must devote a larger share of spending than those with higher incomes to meet this most basic need. Data from the Bureau of Labor Statistics’ annual Consumer Expenditure Survey show that food purchases for home consumption are a much larger share of total expenditures for the lowest income quintile than the top quintile (as shown in the graph below). 3 Also, it is notable that families in the lower income range spend a larger share of their total food budget on food to eat at home, while higher income households spend a larger share on eating meals out. 4

Source: Bureau of Labor Statistics.

Lower-income families therefore receive the most benefit from the exemption for groceries. Repealing it would disproportionately increase the share of income they pay in taxes, making Kentucky’s tax system more regressive than it already is. 5 The chart below from the Institute on Taxation and Economic Policy (ITEP), illustrating the estimated distributional impact of including groceries in the Kentucky sales tax base, shows that families in the bottom 20 percent would see their taxes increase as a share of income by 10 times more than families in the top 1 percent. 6

Source: Institute on Taxation and Economic Policy (ITEP).

ITEP’s distributional analysis accounts for the fact that if groceries are taxed, some purchases made by low-income families through SNAP (formerly known as food stamps) would continue to be tax-free, as required by federal law. The impact on low-income families remains large however, for a couple of reasons. To begin with, not all low-income people are eligible for SNAP and some who are eligible do not claim it. For those who do, benefits are based on a formula that still expects people to contribute a significant portion of their income to food purchases – and those purchases outside of SNAP would become taxable under a repeal of the grocery exemption. 7 SNAP benefits are not intended to fully cover a family’s basic diet, providing only about $1.40 per person, per meal. The tax increase for families in the bottom quintile from putting the sales tax back on groceries equals $118 a year on average. 8

Low- to middle-income families’ purchasing power is already being squeezed. Real wages for Kentucky workers in the bottom 30 percent are below where they were 15 years ago and wages at the median have grown by less than 1 percent. 9 Meanwhile, income at the top has soared. Tax changes that ask more of those for whom the economy is stagnant – such as an expansion of sales taxes to groceries – exacerbate this inequality. For families in the second lowest income quintile, a grocery tax would increase what they pay by $197 on average every year. For families in the middle-income quintile, they would pay $271 more.

It should also be noted that if a grocery tax were part of a tax package that decreases income taxes, the extent to which it would deepen disparities in Kentucky’s tax system is even worse than indicated above. Currently in Kentucky, the poorest 20 percent pay 1.2 percent of their incomes in personal income taxes while the richest 1 percent pay 5 percent. 10 A plan that taxes groceries in order to pay for a cut in income tax rates would be a massive redistribution of dollars from low- and middle-income Kentuckians to those at the top.

Combined with Income Tax Cuts, Repeal Would Worsen Kentucky’s Revenue Problems

Adding groceries to the sales tax base would also worsen the extent to which Kentucky’s revenue keeps up with growth in the economy. The reason groceries weaken the rate of revenue growth is that they have been declining as a share of household expenditures for decades. Food costs have declined dramatically relative to the cost of other goods, families eat out more than they used to and other purchases associated with a service-oriented economy make up a larger share of consumption. Between 1960 and 2016, food purchased for off-premises consumption has fallen from 18.9 percent of what Americans buy to only 7.2 percent. 11 Since grocery consumption is a shrinking part of the economy, expanding the sales tax base to include it would lower the overall rate of sales tax revenue growth. Especially if a grocery tax is enacted along with a reduction in much faster-growing income taxes, such a plan would worsen Kentucky’s ability to maintain public investments over the long term. 12

Additionally, if Kentucky were to repeal the grocery exemption, shopping patterns in border communities could be impacted. While research does not support the claim that significant numbers of people  relocate their entire lives to follow lower state income tax rates, it supports the concern that people who live in border areas – for instance in the greater Louisville and Cincinnati regions – would buy groceries across state lines. 13 Among our neighbors, Indiana, Ohio and West Virginia exempt groceries from sales taxes, with the rest taxing them at a lower rate than the general sales tax: Illinois at 1 percent; Missouri at 1.225 percent; Tennessee at 5 percent; and Virginia at 2.5 percent. 14  Changes in shopping patterns could reduce the anticipated state revenue from grocery sales taxes, as well as jobs in Kentucky and state and local revenue derived from Kentucky merchants’ income.

Kentucky Should Maintain Its Grocery Exemption

Of the 45 states that levy a sales tax, 31 exempt groceries from the base. For all the reasons this brief describes, the recent trend in state legislatures has been to reduce, rather than increase the sales tax on groceries. In our region alone over the last 20 years, Georgia, Louisiana, North Carolina, South Carolina and West Virginia have all exempted groceries from the sales tax; while Virginia, Tennessee and Arkansas have reduced their sales tax rates on groceries to below the general sales tax rate. 15

Taxing groceries won’t address the core problem with Kentucky’s tax system – that the revenue we have to invest in our communities is eroding relative to our economy. And the revenue a grocery tax would raise disproportionally impacts low-income families. Getting rid of special interest tax breaks for powerful interests and those with greater ability to pay is a better solution for Kentucky’s inadequate and upside-down tax system.

 

  1. Governor’s Office for Economic Analysis, “Commonwealth of Kentucky Tax Expenditure Analysis: Fiscal Years 2016-2018,” Office of the State Budget Director, http://osbd.ky.gov/Publications/Documents/Special%20Reports/Tax%20Expenditure%20Analysis%20Fiscal%20Years%202016-2018.pdf. This estimate includes the expenditures attributable to SNAP (formerly known as food stamp) purchases, which are exempt, and therefore overestimates the fiscal impact of a repeal. The Institute on Taxation and Economic Policy estimates a $588 million impact from eliminating the grocery exemption.
  2. Carl Davis, Kelly Davis, Matthew Gardner et al, “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” 5th Edition, Institute on Taxation and Economic Policy, January 2015, http://www.itep.org/whopays/.
  3. Bureau of Labor Statistics, “Table 1101. Quintiles of income before taxes: annual expenditure means, shares, standard errors, and coefficients of variation,” Consumer Expenditure Survey, 2015, https://www.bls.gov/cex/2015/combined/quintile.pdf.
  4.  Bureau of Labor Statistics, “High-income households spent half of their food budget on food away from home in 2015,” TED: The Economics Daily, October 5, 2016, https://www.bls.gov/opub/ted/2016/high-income-households-spent-half-of-their-food-budget-on-food-away-from-home-in-2015.htm.
  5. Currently in Kentucky, the top 1 percent of families pay 6 percent of their income in state and local taxes while the poorest 20 percent pay 9 percent. Carl Davis, Kelly Davis, Matthew Gardner et al, “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”
  6.  Some states that impose the sales tax on groceries attempt to address the disproportionate impact on low-income families by providing targeted income tax credits, usually in an amount that is much lower than what these families actually spend on groceries. Kentucky is better off maintaining its current exemption. In states that provide them, legislatures tend to let credits erode over time and even vote to cut them in times of fiscal strain. For instance, to help pay for income tax cuts for the wealthy in 2013, Kansas legislators voted to make their refundable credit for low-income families’ food purchases nonrefundable, which means that many low-income families with low or no income tax liability lost benefits.
  7. SNAP’s net income calculation includes a handful of deductions (standard, dependent, medical expenses and high housing costs) that reduce the base of the expected contribution calculation. Even though this adjustment reflects the limited income families have available for food purchases, SNAP benefits still do not make up the entire gap between what families can spend, and what they need to become food-secure. Research suggests that higher benefits would result in higher spending on groceries. Patricia Anderson and Kristin Butcher, “The relationships Among SNAP Benefits, Grocery Spending, Diet Quality, and the Adequacy of Low-Income Families’ Resources,” Center on Budget and Policy Priorities, June 14, 2016, http://www.cbpp.org/research/food-assistance/the-relationships-among-snap-benefits-grocery-spending-diet-quality-and-the.
  8.  The Center on Budget and Policy Priorities, “A Quick Guide to SNAP Eligibility and Benefits,” September 30, 2016, http://www.cbpp.org/research/a-quick-guide-to-snap-eligibility-and-benefits.
  9. Economic Policy Institute analysis of Current Population Survey data, using CPI-U-RS to adjust for inflation.
  10. Carl Davis, Kelly Davis, Matthew Gardner et al, “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”
  11. KCEP analysis of Bureau of Economic Analysis personal consumption expenditure data.
  12.  Jason Bailey, “Will More Revenue from Tax Reform Be Real and Sustaining?” Kentucky Center for Economic Policy, February 9, 2017, http://kypolicy.org/will-revenue-tax-reform-real-sustaining/.
  13. Michael Mazerov, “State Taxes Have a Negligible Impact on Americans’ Interstate Moves,” Center on Budget and Policy Priorities, May 21, 2014, http://www.cbpp.org/research/state-budget-and-tax/state-taxes-have-a-negligible-impact-on-americans-interstate-moves. Mehmet Tosun and Mark Skidmore, “Cross-Border Shopping and the Sales Tax: A Reexamination of Food Purchases in West Virginia,” Working Paper 2005-07, Regional Research Institute, West Virginia University, http://rri.wvu.edu/wp-content/uploads/2012/11/Tosunwp2005-7.pdf.
  14. Eric Figueroa and Samantha Waxman, “Which States Tax the Sale of Food for Home Consumption in 2017?” Center on Budget and Policy Priorities, March 1, 2017, http://www.cbpp.org/research/state-budget-and-tax/which-states-tax-the-sale-of-food-for-home-consumption-in-2017.
  15. Nicholas Johnson and Iris J. Lav, “Should States Tax Food? Examining the Policy Issues and Options,” Center on Budget and Policy Priorities, May 1998, http://www.cbpp.org/sites/default/files/atoms/files/stfdtax98.pdf. Eric Figueroa and Samantha Waxman, “Which States Tax the Sale of Food for Home Consumption in 2017.”

SNAP Works and Shows Where Economic Progress Still Needed

The Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps, played a key role in helping cushion Kentucky’s economy from the depths of the Great Recession. It continues to be a critical lifeline and economic stimulus for people and parts of the state facing ongoing economic challenges.

SNAP is designed to automatically help boost the economy when it falters. More people become eligible for the program when jobs are lost and incomes decline. That feature both supports families during hard times and counteracts the economic drag of lower spending.

The recent history of SNAP in Kentucky makes this clear. Between 2008 and 2013 — as the Great Recession hit and its effects lingered — the number of Kentuckians receiving SNAP benefits increased by 221,000. But as the economy improved since then, the number of SNAP recipients fell by 25 percent and returned to its level before the recession hit.

Source: Cabinet for Health and Family Services.

Without SNAP kicking in, recessions would be deeper, longer and more painful. As the Center on Budget and Policy Priorities reports, “after unemployment insurance, SNAP is the most responsive federal program providing additional assistance during downturns.”

This role for SNAP also extends to economic problems that crop up at a local level. While SNAP enrollment has fallen across the state since 2013, the decline has been greater in counties experiencing a more robust recovery while the program has continued to play a larger role in counties facing economic barriers.

Twenty Kentucky counties, many of them in central and northern Kentucky, have had a greater than 30 percent decline in SNAP enrollment over the last three years, even while many of those counties have had growing populations overall. In contrast, 10 eastern Kentucky counties have seen SNAP enrollment decline by a more modest 15 percent or less. And a number of eastern Kentucky counties — including Letcher, Harlan, Perry, Knott, Floyd and Pike — have more people receiving SNAP now than in 2008, despite population loss over that time in those areas.


The loss of coal jobs in those counties beginning in 2012, and the ripple effect in communities, plays a big role in that difference. SNAP picked up some of the slack in local economies and ensured many families could meet basic needs. But the lag in those counties — on top of the longstanding high poverty rates that existed in those places already — underscores the serious need for other public investments to help create jobs and transition the economy.

SNAP does its job very well. In addition to economic stimulus, it protects families from hardship and hunger, reduces the depth of poverty, supports employment and has low error rates and administrative costs. Kentucky would have much to lose if Congress pursues changing the structure of SNAP to a block grant, which would make it unresponsive to economic conditions, or if the state creates barriers to access this vital program.

House Plan Unwinds Coverage Gains and Makes Harmful Changes to Medicaid Program

By several measures, Kentucky has been the nation’s biggest winner from the Affordable Care Act (ACA). Nearly seven years later, those gains and more are at risk in the recently released American Health Care Act (AHCA) – which not only fails to replace the ACA, but goes beyond it to restructure the Medicaid program in a way that will further reduce access to coverage and benefits. Together, these changes will rip health insurance away from 24 million Americans according to the Congressional Budget Office.

Proposal Unravels Medicaid Expansion and Restructures Medicaid to Shift Costs to States

Per-capita-caps = an end to Medicaid as we know it

The AHCA proposes a highly consequential change to Medicaid in the form of capping payments to a certain dollar amount per enrollee starting in 2019, and then adjusting for inflation (medical-related inflation to begin with, though that formula is vulnerable to cuts in future). Because Kentucky would be on the hook for all the costs above and beyond what the federal government provides, the state would have to choose between increasing its share of payments, cutting benefits, scaling back the number of people enrolled or cutting already too-low payments to hospitals, clinics and other kinds of providers. This funding method also doesn’t take into account spikes in costs due to things like new, expensive medications, outbreaks that are more expensive to treat like the opioid addiction crisis or the larger share of older patients as baby boomers begin requiring more costly care.

This squeezing of federal funding for Medicaid could restrict coverage for all Medicaid recipients — including kids, seniors and people with disabilities.

Unwinds Medicaid expansion by freezing enrollment and ending the enhanced federal match

The plan would freeze enrollment for the Medicaid expansion in 2020, which means no new people would be able to join the program after that point in time and be subsidized with the so-called enhanced “Federal Medical Assistance Percentage” (FMAP). The FMAP is the percent of Medicaid costs that the federal government pays. For Kentucky, traditional Medicaid is 70 percent paid for by the federal government and 30 percent paid for by the state. In contrast, for Medicaid expansion, the federal government pays an enhanced FMAP of 90 percent.

The federal government would still pay 90 percent of the cost for existing Medicaid enrollees, but that group would disappear as they cycle out of the program because of income or other eligibility changes. According to a report from the National Academy for State Health Policy, Kentucky saw 13,000 people cycle between Medicaid and marketplace coverage in 2014 because changes in their incomes made them eligible or ineligible for Medicaid. In the Medicaid program as a whole, 19 percent of Kentucky recipients covered in 2012 were no longer covered in 2013. The result is a death by attrition for expanded Medicaid in Kentucky.

The cost of paying for expanded Medicaid with the lower state matching rate is hefty — an earlier estimate put it at $712.7 million in 2019 for Kentucky above what we would otherwise pay with the enhanced match. It is extremely unlikely that our legislature would be willing to pick up that tab in future years.

Between reducing the enhanced federal match and freezing enrollment for the expansion as well as instituting a per-capita-cap across the board, the Congressional Budget Office estimates that 14 of the 24 million fewer people with coverage would come from reduced Medicaid enrollment. By comparison, a little over 11 million people gained coverage from expanded Medicaid since 2014.

Plan Threatens Private Insurance Market and Reduces Premium Assistance for Low-income and Older Kentuckians

Help for buying insurance based on age, not income

The new plan would still offer tax credits for helping people purchase insurance plans, but not based on income. Rather people would receive a tax credit between $2,000 and $4,000 based on age, ranging from 30-60 years old. This puts older, low-income Kentuckians at a significant disadvantage. As an example, a 60 year old earning $20,000 per year in Pike County would see a $6,410 decrease in her tax credit and a $6,000 decrease in Muhlenberg County under the AHCA compared to the ACA. The plan cuts credits for some low-income people even while people with incomes higher than what is eligible for subsidies under the ACA (up to $115,000) could get tax credits for purchasing insurance. And the credits don’t come close to covering the cost of insurance, particularly for older Kentuckians, who under this law could be charged up to five times as much as a young adult (compared to only three times more now).

The “continuous coverage” requirement would likely damage private insurance market

Under the AHCA plan, there is still a requirement for insurance companies that they cannot turn people away or charge exorbitant premiums for those with preexisting conditions; this is called “guaranteed issue.” At the same time, the plan removes the individual mandate that requires everyone have insurance – but the mandate is necessary to make guaranteed issue work without destabilizing insurance markets. The way the plan proposes to fix this problem is by introducing a “continuous coverage” requirement. This provision says that once enrolled you have to stay enrolled without a lapse of more than 63 days. If you do experience a gap in coverage for longer than 63 days, insurance companies would be able to increase premiums by 30 percent.

In practice, this creates incentives for healthy people to avoid the 30 percent penalty by not enrolling in coverage until they are ill, leaving sick people in the insurance pool and making insurance more expensive, which we’ve written about here. Ultimately, that can mean skyrocketing premiums, large drops in coverage and weaker coverage for insurance markets. The Congressional Budget Office estimates that there would be a decline of nine million people by 2026 between the employer-based and individually purchased insurance markets based on changes in the AHCA.

The AHCA Would Set Back Our Health and Economy

Fundamentally restructuring Medicaid, unwinding the Medicaid expansion that has provided coverage for 440,000 Kentuckians, reducing help for low-income and older Kentuckians to purchase insurance, and destabilizing private insurance markets are all reversals of the healthcare successes we’ve experienced as a Commonwealth. These damaging policy changes are being made in the AHCA to pay for large tax cuts for the wealthy and corporations in the bill. Another concerning consequence is that it scales back the lifespan of the Medicare Trust Fund, putting pressure on future lawmakers to further cut healthcare for seniors.

Kentucky has seen enormous gains because of the ACA. Our rate of uninsured has been cut dramatically, our providers have seen an 80 percent decrease in uncompensated care and low-income Kentuckians are already reporting better health. There are 1.3 million Kentuckians covered by Medicaid, and 130,000 who get insurance through the individual insurance market, all of whom are put at risk in some way by this plan. Lawmakers in Washington should reject this plan, and any other healthcare proposal that jeopardizes our health and our economy.

Updated March 14, 2017

Too Many Kentuckians Remain Underemployed

A close look at the employment level of Kentucky’s working age population shows more progress is needed to reach full economic recovery, as we recently noted. Another measure, called the underemployment rate, also shows there remain many Kentuckians who want more work than they are able to find.

Three groups of people make up the underemployment rate. The first is those classified as unemployed, meaning they are without a job but have looked for work in the past four weeks. The second group consists of “marginally attached workers,” meaning individuals who are not in the labor force but report they want to work, are available for employment and have looked for a job within the last year. And a third group is those who are working part-time for economic reasons, meaning they work less than 35 hours a week but report wanting to work full-time and being available for full-time employment.

In 2016, 9.7 percent of Kentucky’s labor force was underemployed, as shown in the graph below. While that number has improved substantially from the depths of the Great Recession, it is still above the 9.3 percent rate of 2007 and significantly above the 6.9 percent rate reached in 2000.

Source: Economic Policy Institute analysis of Current Population Survey data.

A still-high share of part-time workers who would rather be full-time is a piece of the problem. In 2016, 23.1 percent of Kentucky workers were part time, about the same share as the last few decades. But the percentage of part-time workers who report doing so for economic reasons remains elevated at 16.8 percent in 2016, as shown in the graph below (and no, this has nothing to do with the Affordable Care Act). In contrast, that share was only 14.7 percent in 2008 and as low as 9.2 percent in 2000.

Source: Economic Policy Institute analysis of Current Population Survey data.

These numbers remain elevated because Kentucky still lacks needed jobs, including full-time opportunities. Our situation begs for more policy efforts that spur additional job growth so we can get back to full employment, along with policies that improve job quality and remove barriers that keep people from obtaining work. We also need to guard against policies that, despite false promises, will make things worse or fail to create jobs. We outlined more about what to do, and what not to do, in our previous blog and here.

 

130,000 Kentuckians in Individual Market Would Lose Coverage from Health Reform Repeal

A partial repeal of the Affordable Care Act would likely result in close to half a million people becoming uninsured in Kentucky, including those who buy health coverage directly from an insurance company. According to the Urban Institute, 130,000 Kentuckians who are individually insured would lose coverage. Because the ACA requires everyone to have insurance or face a penalty, a larger, healthier and younger pool of plan-holders has made it possible for insurance companies to cover people who have conditions that make them more expensive to cover like asthma, diabetes, and even pregnancy. Repeal would undo that and create what’s called a “death spiral.”

Source: Urban Institute analysis using HIPSM 2016.

What Is a “Death Spiral?”

The Affordable Care Act (ACA) has been very successful in getting Kentuckians insured through the expansion of Medicaid and by offering subsidized insurance plans to low-income Kentuckians. Uninsured rates have also gone down thanks to the ACA ban on insurers denying coverage based on preexisting conditions and the requirement that everyone have insurance coverage or else face a penalty. These two provisions are related – it’s only with healthy, less medically expensive people gaining coverage that insurers could afford to cover sicker people with higher medical expenses. As a result of this relationship, removing the individual mandate, as well as the loss of federal subsidies for Qualified Health Plans through the marketplace, would trigger what is known as a “death spiral,” Here is how the death spiral would work:

 

Although some have claimed that the ACA is already in a death spiral, evidence has not shown this to be true. According to the American Academy of Actuaries and Standard & Poor’s, you would expect to see declining enrollment in the ACA marketplaces or continually escalating premiums. But nationally, marketplace enrollment has grown each year since 2014. And the sharp rise in insurance premiums this past year was a “one time pricing correction” not likely to be seen again in coming years.

As Kentuckians have taken advantage of federally subsidized Qualified Health Plans since 2014 through the ACA, the individual insurance policy market has expanded. Furthermore, because the share of employers offering insurance as a benefit has been falling — from 54.4 percent in 2012 to 47.8 percent in 2015 – there has been an increasing reliance on individual insurance policies.  More broadly the economy was nearing recovery in 2015 from the hit it took during the Great Recession. All of these factors combined so that people felt they could start buying insurance again. With repeal, that’s not likely to continue.

The ACA Repeal Would Hurt All Kentuckians

The ACA had a wide-ranging impact on the healthcare of Kentuckians. Besides the roughly half million Kentuckians enrolled in either the  Medicaid expansion or  Qualified Health Plans whose coverage would be jeopardized from a repeal of the Affordable Care Act, chaos in the individual insurance market, loss of patient protections and loss of billions in federal funding would be felt in every corner of the commonwealth. Even before Congress finalizes legislation to repeal parts of the law, President Trump can shock the healthcare sector, specifically the individual insurance market, through actions like the executive order he signed just after his inauguration. It did not detail what exactly what parts of the ACA would or wouldn’t be enforced, but that very ambiguity is enough to give insurers a second thought about participating in the individual market this coming year.

The complexity and interdependent nature of the law makes it nearly impossible to remove parts of it without causing damage to the whole healthcare system, including people who buy insurance individually. This is not the time to move backward on the gains we’ve realized as a commonwealth. Congress can and should improve on the ACA, so that more Kentuckians have quality, affordable healthcare. Instead it is tilting full steam toward repeal.

 

Testimony for Congressman Yarmuth’s ACA Repeal Forum

Click to view as a PDF.

Intro:

Good afternoon, my name is Dustin Pugel and I’m a research and policy associate with the Kentucky Center for Economic Policy, a think tank that seeks to improve the quality of life for all Kentuckians through better public policies.

Communities thrive when they have a strong foundation made up of things like good education, safe streets, and affordable, quality healthcare. The Affordable Care Act (ACA) has empowered Kentucky to bring healthcare to half a million of our most vulnerable, protect ourselves from harmful insurance practices, strengthen our healthcare system and boost our economy. There are so many reasons not to move backward on the progress we’ve made.

I want to briefly run down what experts believe a repeal of the ACA would mean for the commonwealth. Many people forget, but it was originally called the “Patient Protection and Affordable Care Act,” so I think it’s helpful to talk about what repeal would mean in these terms:

  • What kinds of affordable care are in jeopardy,
  • What patient protections are poised to be lost,
  • And finally, how those changes will hurt our economy, jobs and state budget.

Affordable Care:

In considering a repeal’s effect on affordable care, first and foremost, an estimated 486,000 Kentuckians would lose insurance coverage. That loss of insurance coverage is a tripling of the number of uninsured in Kentucky. This decline would come from people losing Medicaid and federal insurance subsidies, people no longer being required to be insured (known as the individual mandate) and the individual insurance market entering into what is called a death spiral.

Because a repeal would disproportionately harm states that expanded Medicaid and saw large decreases in their uninsured, Kentucky is among the states with the most to lose. In fact, we would have the third largest increase in the rate of uninsured in the country.

These same plans to repeal would also result in a huge decline in 2019 federal spending in the commonwealth on Medicaid expansion and insurance policy subsidies. Between 2019 and 2028 Kentucky would receive nearly $50 billion less in federal dollars. This federal money injected into our economy has resulted in large employment gains in the healthcare sector and steep declines in the amount of money healthcare providers spend on uninsured patients, called charity or uncompensated care. Nationally, the Urban Institute expects there to be a $1.1 trillion increase in demand for uncompensated care between 2019 and 2028 if repeal moves forward.

Patient Protections:

When it comes to the protections we would lose as Kentuckians, the healthcare reform law is expansive and complex, but a few critical protections stand out, such as:

1.9 million privately insured Kentuckians as well as 863,000 seniors on Medicare could lose free preventative care like immunizations, blood pressure screenings and cancer screenings.

1.4 million Kentuckians, including children, could see caps placed on the amount an insurer would spend over each person’s lifetime, or even each year — cutting off coverage for the sickest individuals when they most need it.

Women could be charged premiums as high as 57 percent more than men.

All insured Kentuckians could lose protection from being overcharged by insurance companies. Since the ACA was passed, companies have refunded Kentuckians $33.3 million that weren’t needed for administration or care.

The ACA also included a provision that corrects a glitch in Medicare prescription coverage that led to some prescription drugs becoming too expensive. But an ACA repeal would mean disabled and older Kentuckians would pay more for prescription drugs, or else forgo them entirely. The average savings for affected Kentuckians was $1,108 per person in 2015 alone.

One especially popular part of the law is the requirement that insurers not deny coverage to someone with a preexisting condition. One of the biggest problems lawmakers will encounter when attempting to repeal the ACA is that the preexisting conditions provision creates a double bind.

On the one hand, if it is repealed, 1.9 million Kentuckians with conditions like asthma, diabetes, cancer and even pregnancy could see their premiums dramatically increase, or simply be denied insurance coverage all together. On the other hand, if the preexisting coverage protection stays, but the individual mandate is repealed, then insurers will be left with expensive, sick enrollees, while the healthy, inexpensive enrollees leave the market. The end result is what’s called a death spiral, when insurers have to increase costs, so more people pull out because they can’t afford it, until insurance companies decide not to offer individual plans anymore. This would be devastating for the hundreds of thousands of Kentuckians who buy insurance directly from an insurance company.

Economic Ripples:

The billions of federal dollars that have been pumped into Kentucky have had a major impact on our economy. If repeal moves forward and that money suddenly evaporates, every part of the state will feel it.

According to the Commonwealth Fund, of the 45,000 jobs that would be lost in 2019 because of repeal, 38 percent would be in the healthcare sector. The rest would come from construction, real estate, retail, finance and other industries.

Over five years beginning in 2019, Kentucky’s business output would lose nearly $41 billion in value in addition to $24 billion less in federal spending. With such a dramatic drop in our state’s economic activity, the state would see $718 million less in revenue in the midst of a health crisis and a massive pension liability that has already pushed lawmakers to undermine critical state services.

ACA repeal would wreak havoc on Kentucky:

The Affordable Care Act has been a lifeline to Kentuckians who either gained healthcare coverage through the Medicaid expansion and insurance subsidies, or have been protected from harmful practices banned by provisions in the law. Our economy has benefitted from a large influx in federal funds that have boosted job growth and invigorated local economies.

Instead of building on these successes, repealing the ACA would wreak havoc on our healthcare system and reverberate throughout the commonwealth. People would be left without access to needed treatment, healthcare providers would see their revenues shrink and potentially lead them to close their doors, and state government would be forced to further cut vital services as it deals with a smaller state coffer. Congress can and should improve on the ACA, and any public healthcare program, so that more Kentuckians have quality, affordable healthcare, but instead it is tilting full steam toward repeal. Kentucky’s representatives in Washington should be aware of the damage that would cause back home.

Job Growth Claims from Right to Work Not Backed by Evidence

Proponents of Right-to-Work (RTW) argue that Kentucky would attract more jobs if such a law was in place, especially in manufacturing. But the evidence does not show our RTW neighbors have grown jobs more successfully than Kentucky in recent years, and academic research on the subject also doesn’t find a link between RTW and job growth.

Looking at statewide manufacturing job growth in Kentucky and our RTW neighbors, all are still below December 2007 employment levels before the Great Recession hit, but Kentucky is the closest to regaining the jobs that were lost.

rtwSource: Economic Policy Institute Analysis of Current Establishment Survey (CES) data.

At the local level, data from the Quarterly Census of Employment and Wages (QCEW) allows comparisons of the manufacturing sector in counties on either side of the Ohio River in the Louisville Metropolitan Statistical Area (MSA). Since Indiana went RTW in February 2012, manufacturing has fared better on the Kentucky side of the MSA than on the Indiana side.

indiana

Source: Bureau of Labor Statistics, QCEW.

More importantly, when researchers control for other factors they have found no evidence of an impact from RTW on job growth, as in a careful analysis of Oklahoma. A study by the Center for Business and Economic Research at the University of Kentucky also found no discernible positive impact from RTW on states’ economic growth.

While research hasn’t found a link between RTW and job growth, RTW is associated with lower wages. Controlling for other factors, workers in RTW states make 3.1 percent, or about $1,558 less a year (in 2015 dollars). Wage erosion harms workers, their families and our economy negatively, including by reducing demand for the kinds of goods manufacturers produce. Low and stagnant wages are already a central problem facing the economy, and we don’t need to make it worse.

Kentucky is wiser to focus on economic development strategies that improve our workforce skills, infrastructure and quality of life rather than approaches that reduce wages while failing to deliver the jobs that are promised.

The Path to a Stronger Commonwealth: Prioritizing Investments in Our Communities Over Tax Breaks for the Powerful

Kentucky faces a choice: cleaning up our tax code of special interest tax breaks so we can invest in excellent schools, a healthy and skilled workforce, modern infrastructure and other building blocks of thriving communities in the Commonwealth; or continuing to allow our tax code to be manipulated for the benefit of just a few, while essential investments fall farther behind. This report explores these two choices and provides direction for the road ahead. Moving forward means raising new revenue to invest in the foundations of thriving communities by cleaning up our tax code, eliminating breaks those at the top have managed to put there. Moving backward means undermining investments in a stronger state by failing to clean up tax breaks and continuing with more tax giveaways for those at the top.

You can view the report here.