Medicaid Expansion is a Very Good Deal for Kentucky

The 2014 expansion of Medicaid in the Affordable Care Act will benefit Kentuckians substantially, while the federal government will largely pick up the bill. According to one analysis, Kentucky will see a 37.3 percent increase in Medicaid enrollment at only a 3.5 percent increase in state Medicaid costs.

A major way in which the Affordable Care Act will increase health insurance coverage is by expanding Medicaid to adults with incomes up to 138 percent of the federal poverty line ($26,344 for a family of three in 2012). That could mean health coverage for up to 61 percent of Kentucky’s uninsured. Currently in Kentucky, the only adults eligible for Medicaid (besides adults with disabilities, pregnant women and seniors in nursing homes) are parents with extremely low incomes—below 59 percent of the federal poverty line ($11,263 for a family of three).

Under the Affordable Care Act the federal government will pay all of the cost for the first three years of making all adults (not just parents) eligible for Medicaid with, as mentioned, incomes up to 138 percent of poverty. Thereafter, the federal government’s share phases down to 90 percent of the cost in 2020.

That’s a good deal for Kentucky—a large expansion of health insurance coverage to the working poor at only a small increase in state costs. And the increase in costs doesn’t reflect the savings Kentucky will realize in lower uncompensated care costs for the uninsured. Providers across Kentucky will benefit as well from the increase in regular, paying patients–meaning jobs for nurses and other health professions.

From 2014-2019, the federal government will pay for an estimated 95.8 percent of the cost of the expansion and inject $11.9 billion into the Kentucky economy over that period.

But won’t it drive up the deficit if the federal government has to pick up the costs of this expansion? No. The entire Affordable Care Act includes various cost savings measures and new revenue, thereby actually reducing the budget deficit by $143 billion over the years 2010-2019.

Moving forward on the Medicaid expansion, along with the implementation of a health insurance exchange, will allow Kentucky to take full advantage of the critical health and economic benefits that the legislation offers.

Supreme Court Ruling Allows Kentucky to Move Forward on Addressing Health Challenges

The Supreme Court’s decision today to uphold the Affordable Care Act (ACA) is good news for Kentucky, a state with tremendous health challenges and a growing number of families that struggle to afford health care coverage.

More than one in seven Kentuckians lack health insurance, but when the ACA is fully implemented in 2014 around half of the uninsured will obtain insurance through the expansion of Medicaid to the working poor. Many thousands more individuals and employees of small businesses will gain coverage through access to a health insurance exchange beginning that year, where they can buy coverage with the help of tax credits.

Other aspects of the ACA are already making the health care system fairer and more inclusive. Many thousands of Kentuckians have benefitted or will benefit from measures that allow young people up to age 26 to remain on their parents’ health insurance; prevent insurers from denying coverage based on pre-existing conditions or charge women or sick people more for insurance; require preventative services like wellness visits be included in Medicare and private insurance without co-pays; help seniors afford prescription drugs; and expand community health centers.

As a state in which many struggle with poor health, including higher than average rates of diabetes, cancer, and obesity, improved coverage and higher quality care are essential to improving Kentuckians’ lives and strengthening our economy. The old, fragmented health care system is falling apart, with employer-based health care coverage falling from 70 percent of Kentucky workers in 1980 to only 56 percent today.

More can and should be done to extend health care to all Americans, improve health quality and control the growth of health care costs. But the Supreme Court’s affirmation of the ACA today will mean better health for Kentuckians, and a big step in the right direction. It is now incumbent upon Kentucky leaders to unite behind implementation of the bill.

For the full text of the Supreme Court’s ACA ruling, click here.

Kentucky’s Income Tax: Protecting and Strengthening a Key to Growth

New Report: “Kentucky’s Income Tax: Protecting and Strengthening a Key to Growth”

Kentucky’s Income Tax Is Key to Fairness and Economic Growth

Report Outlines Reasons to Protect Income Tax and Ways to Strengthen It

The individual income tax is the largest, most productive and fairest tool Kentucky has to generate needed revenues. It should be protected and strengthened as part of any tax reform plan, according to a new report by the Kentucky Center for Economic Policy (KCEP).

The report notes that the individual income tax is the single largest source of revenue for schools, health care and other needs, generating nearly 40 percent of Kentucky’s General Fund. Not only is it the foundation of an adequate state budget, but research also shows that income taxes are more effective than other major taxes at generating the revenues needed to keep pace with Kentucky’s needs over time.

In addition, the state income tax is the only major tax based on ability to pay, making it essential to a fairer tax system. The income tax is far more equitable than the sales tax—in Kentucky the poorest 20 percent pay 1.3 percent of their income in state and local income taxes, while the richest one percent pay 4.8 percent. In contrast, the poorest 20 percent of Kentuckians pay 5.6 percent of their income in sales and excise taxes, while the richest one percent pay only 0.9 percent.

“Reducing or eliminating the income tax would require huge increases in taxes on low- and middle-income Kentuckians and would mean less revenue over time for schools, health care and other needed investments,” said Jason Bailey, Director of the Kentucky Center for Economic Policy. “Strengthening the income tax by closing loopholes and making sure everyone pays their fair share, on the other hand, is a critical strategy for tax reform.”

The many benefits of income taxes are why 41 states have them. Most of those that don’t have unique economic characteristics that allow them to generate significant revenue through other means (such as natural resources taxes in Alaska or Wyoming), or they have much higher sales and property taxes that hit poor and middle-class residents harder.

Contrary to some claims, the research reviewed in the report shows that having an income tax (and increasing it) does not cause people to move out of a state, and income taxes are not a drag on economic growth. Rather, the public investments that the income tax makes possible are critical to economic development.

The report identifies four ways to strengthen Kentucky’s income tax: 1) eliminate or limit itemized deductions (as in Ohio, Indiana and West Virginia), which tend to benefit higher-income people; 2) modernize the tax brackets and rates so that they better reflect ability to pay, including introducing a higher rate for high earners; 3) create a state earned income tax credit to support working families; and 4) phase out the exclusion for pension income, by which many retirees pay little or no state income taxes.

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The Kentucky Center for Economic Policy is a non-profit, non-partisan initiative that conducts research, analysis and education on important policy issues facing the Commonwealth. Launched in 2011, the Center is a project of the Mountain Association for Community Economic Development (MACED). 

Kentucky’s Income Tax: Protecting and Strengthening a Key to Growth.pdf

Kentucky’s Income Tax: Protecting and Strengthening a Key to Growth

The individual income tax is the largest, most productive and fairest tool Kentucky has to generate needed revenues. It should be protected and strengthened as part of any tax reform plan, and a new KCEP report describes why and how.

Importance of Income Tax

 

Who Would Benefit from Alternative Ways to Extend the Bush Tax Cuts?

Report available here: www.ctj.org/bushtaxcuts2012.php

New Analysis Finds Extending All Bush Tax Cuts Would Give Richest One Percent of Kentuckians $28,200 Per Year More and Give Poorest 20 Percent $100 Less on Average than President’s Approach

Comparison of Two Approaches to Extending Some or All of the Bush Tax Cuts for All Americans Released Today

Middle-income and low-income Kentuckians would pay slightly more in taxes under the Congressional Republicans’ approach to extending the Bush tax cuts than they would under President Obama’s approach, while high-income Kentuckians would pay far less under the Congressional Republicans’ approach, according to a new analysis from the Institute on Taxation and Economic Policy (ITEP) and Citizens for Tax Justice (CTJ). National figures show the same pattern.

“What we need most right now in Kentucky is public action to create jobs through investments in areas like energy and infrastructure, assistance to struggling families, and aid to roll back damaging state budget cuts,” said Jason Bailey, Director of the Kentucky Center for Economic Policy. “Extending tax cuts targeted only to the wealthiest is not an effective strategy to spur economic growth. All it does is feed the trend toward growing inequality in our state and in our country.”

Both plans analyzed in the report would give big tax cuts to those at the top, but the proposal to extend all of the tax cuts gives substantially larger benefits to the richest one percent. Under President Obama’s approach, in 2013, the poorest 20 percent of Kentuckians would receive an average tax cut of $150 while the richest one percent would get an average tax cut of $16,920. Under the Congressional Republicans’ approach, the poorest 20 percent of Kentuckians would receive an average tax cut of $50 while the richest one percent would receive an average cut of $45,120.

The study also finds that in 2013: Of tax cuts that go to Kentuckians under the President’s approach, 2.1 percent would go to the poorest 20 percent, 11.9 percent would go to the middle 20 percent and 11.8 percent would go to the richest 1 percent; under the Republican plan, 0.6 percent of the cuts would go to the poorest 20 percent of Kentuckians, 9.2 percent would go to the middle 20 percent and 27.3 percent would go to the richest one percent.

The Bush tax cuts extension outlined by the President would cost one trillion dollars less over 10 years than would making all the Bush tax cuts permanent.

“Both President Obama and Congressional Republicans have proposed to extend far too many of these unaffordable tax cuts,” said Robert S. McIntyre, director of Citizens for Tax Justice. “But if we have to choose between the Congressional Republicans’ and President Obama’s approach, the President’s proposal is fairer and more responsible.”

The term “Bush tax cuts” refers to income tax cuts and estate tax cuts enacted in 2001 and 2003 and extended several times since then. In 2009, President Obama expanded some parts of these tax cuts that benefit low income and working families. In December of 2010, the President and Congress agreed to extend all of these tax cuts through the end of 2012.

The Republicans in Congress have indicated that they would extend all of the tax cuts first enacted in 2001 and 2003, but not the 2009 expansions for lower income families. President Obama wants to extend the 2001 and 2003 tax cuts only for the first $250,000 a married couple makes annually, or the first $200,000 a single person makes. Obama also wants to extend the 2009 expansions.

The report also addresses the economic effects of tax cuts versus direct government spending and cites Moody Analytics research concluding that government spending is more stimulative by a factor of five, or more, than tax cuts.

The full report is available at www.ctj.org/bushtaxcuts2012.php and shows the specific distribution of the benefits, and amounts of tax cuts, from the two different approaches in each of the fifty states and the District of Columbia as well as nationally.

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Citizens for Tax Justice (CTJ), founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation ( www.ctj.org).

Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a 501 (c)(3) non-profit, non-partisan research organization based in Washington, DC that focuses on federal and state tax policy. ITEP’s mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy (www.itepnet.org).

The Kentucky Center for Economic Policy is a non-profit, non-partisan initiative that conducts research, analysis and education on important policy issues facing the Commonwealth. Launched in 2011, the Center is a project of the Mountain Association for Community Economic Development (MACED). 

Immigrant Entrepreneurs Help Grow Kentucky Economy

A new report shows that one in six small business owners in the United States is an immigrant, while in Kentucky immigrants play a disproportionately large role as business owners relative to their small population.

In Kentucky, according to the report by the Fiscal Policy Institute, immigrants make up 4.6 percent of business owners while constituting only 2.8 percent of the population. Immigrants are more likely to be business owners in Kentucky than U.S.-born workers. Business owners make up 3.4 percent of the foreign-born labor force in Kentucky, and 2.8 percent of the U.S.-born labor force.

As the report shows, immigrants make important contributions to the Kentucky and American economy–including by bringing entrepreneurial ideas and initiative and providing much-needed employment.

“In some communities, we see a political climate that creates a hostile environment for immigrants,” said Frank Mauro, executive director of the Fiscal Policy Institute. “This report shows that, as a country, we can’t go down that path. With immigrants making up one in six of all small business owners, a climate that is hostile to immigrants is also a climate that is bad for business.”

Do We Need a Coal Severance Tax Trust Fund?

“Do We Need a Coal Severance Tax Trust Fund?”

By Roy Silver

Budget Cuts Lead to Job Losses

News of layoffs at the University of Kentucky follows stories of pending job loss at the Fayette County health department. Both announcements can be linked to the 11 rounds of cuts the legislature has made to the state budget, which have reduced funding for many state functions by 15-30 percent or more.

Job growth in the economy remains slow, and budget cuts at all levels are making matters worse. Those cuts are resulting in the direct elimination of jobs—both through layoffs and by agencies and organizations not hiring for open positions. More jobs are lost as the newly unemployed spend less money in local restaurants and stores. What’s more, with public sector layoffs Kentucky erodes vital services needed to grow the economy, including education.

Kentucky lost a big number of public sector jobs when the recession hit, but then slowly gained back some of those jobs from 2009-2011 as the federal Recovery Act helped fill the state funding gap. When that money ran out, and the legislature refused to consider new revenues as part of the budget, we began to see losses in state and local government jobs.

That can be seen in the figures below, which show total state and local government jobs in Kentucky and as a share of the working age population. The state lost 3,500 state and local government jobs between March 2011 and April 2012.

gov employment

share gov employment

Source: Author’s analysis using Bureau of Labor Statistics Current Establishment Survey data provided by the Economic Policy Institute.

 

The Problem of Low Wages in Kentucky

The economy is growing, but job growth is happening way too slowly. To make matters worse, low wages keep many of those Kentucky workers with jobs from meeting their families’ basic needs.

In Kentucky, the big job losses since the beginning of the recession have been in middle-skill industries like manufacturing and construction that have historically meant middle-class wages for workers without a college education. Kentucky has lost a net 35,400 manufacturing jobs since December 2007 and 18,800 construction jobs.1

Decent jobs are going away, while wages at the low-paying jobs that are left have been flat or declining. The figure below shows Kentucky real wages at the 10th, 20th and 30th percentile over the last ten years (at the 10th percentile, 90 percent of workers make higher wages and 10 percent make lower wages). Since 2001, real wages have fallen 5 percent, 8 percent and 8 percent for workers at those three levels.

Falling Real Wages

Source: Author’s analysis of Current Population Survey data provided by the Economic Policy Institute

Wages at the bottom are also simply too low. According to one study, income around 200 percent of the federal poverty line is needed for families in Kentucky to meet basic needs. Yet in Kentucky in 2010, 25 percent of jobs were in occupations that paid wages below the poverty level, while 75 percent were in occupations that paid wages below 200 percent of poverty.2 The Bureau of Labor Statistics estimates that the occupations with the most annual openings over the next ten years in Kentucky will be in the areas of office and administrative support, sales, food preparation and food service, and retail sales—all of which tend to pay low wages.

There are many causes of the problem of low wages, one of which is the real decline of the minimum wage. The federal government increased the minimum wage back in 2007, but at $7.25 an hour it is still too low. If the minimum wage had kept up with inflation over the last 40 years, it would be $10.55 an hour. Studies show increases in the minimum wage help not just those workers at the very bottom of the wage scale, but workers with wages somewhat above the minimum.

Unlike 18 other states, Kentucky does not require a minimum wage above the federal minimum, and the minimum wage for tipped workers in Kentucky is also at the federal minimum of only $2.13 an hour. Ohio provides a higher minimum wage and—like 10 other states–adjusts it annually to increases in inflation. Missouri put raising the minimum wage and indexing it to inflation on the ballot in 2006, and it was approved by 76 percent of Missouri voters.

Low wages harm not just those workers, but the economy as a whole. The biggest drag on employment and economic growth in the country is the lack of consumer spending, and a 2011 study by the Chicago Federal Reserve Bank found that every dollar increase in the minimum wage results in $2,800 in new consumer spending over the following year. If we take steps to bring wages up, we can help finally bring the whole economy back.

  1. Economic Policy Institute analysis of Bureau of Labor Statistics data.
  2. Working Poor Families Project, Occupational Employment Statistics May 2010.

Senior Tax Breaks Don’t Attract Migrants

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 retirement destination. However, a new paper in the peer-reviewed National Tax Journal shows that those breaks also don’t work—a finding that has big implications for Kentucky given the generosity of its senior tax preferences. In the paper, Karen Conway and Jonathan Rork find that migration patterns among the elderly were not affected by changes in state tax laws designed to benefit them over a thirty year period. They write that “our results are overwhelming in their failure to reveal any consistent effect of state income tax breaks on elderly migration.”1

A 2006 survey showed that Kentucky provided among the biggest state tax breaks for seniors. Kentucky exempts the first $41,110 of pension income from the income tax—even if the senior receiving the exemption has a high income. We also provide a senior property tax homestead exemption regardless of ability to pay, and fully exempt social security income from the income tax (15 states only partially exempt it).

Rather than resulting in economic benefits to the state (i.e., by encouraging migration), these tax breaks reduce the revenue we have for schools, health care and other needs by hundreds of millions of dollars a year. And such large tax breaks will be an even bigger challenge in Kentucky as the population ages.

Reforming the tax system means making changes that allow for a more adequate and sustainable flow of revenues for the public investments that are needed to grow the economy and improve quality of life. Reform also means asking everyone to pay their fair share. Any sensible tax reform in Kentucky should reduce senior tax preferences, particularly those given to high-income individuals who are best able to help support needed public services.

  1. Karen Smith Conway and Jonathan C. Rork, “No Country for Old Men (or Women)—Do State Tax Policies Drive Away the Elderly?” National Tax Journal (June 2012), Volume 64, No. 2.