Income inequality continues to widen in Kentucky and the nation through the recovery according to a new report released today by the Economic Policy Institute (EPI). Between 2009 and 2012 (the last year for which data are available) income for the wealthiest 1 percent of Kentuckians grew 21.3 percent, but by only 5.5 percent on average for the bottom 99 percent.
That means the top 1 percent captured 38.4 percent of all income growth in the Commonwealth. On average at the national level, the super rich captured all income growth, with the bottom 99 percent actually experiencing a decline.
The report, “The Increasingly Unequal States of America,”—which uses IRS data to document changes in income by state since the 1920s—shows that the trend is not new: in the four economic expansions following recessions since 1979, the wealthiest Kentuckians have taken home an alarmingly large portion of income growth—on average 41.3 percent.
But steeply widening income inequality has not always been a byproduct of growth: in the six economic expansions following recessions between 1949 and 1979, the share of income growth the top 1 percent of Kentuckians took home was just seven percent (see table below comparing expansions). The authors note that during that time, the minimum wage was growing, collective bargaining was robust, and executive pay did not skyrocket independent of labor conditions.
During the last three decades, however, Congress has allowed the minimum wage to erode and unionization rates to decline, trade policies have cost jobs and suppressed wages, and financial deregulation has netted huge gains on Wall Street at the expense of families and the wider economy. These deliberate policy choices have contributed to soaring incomes at the top and stagnant wages for many workers.
Cumulatively, from 1979 to 2012 the very wealthiest Americans took home 88.5 percent of income growth, and in Kentucky all of it went to those at the top (income grew 82.8 percent for the richest 1 percent, while declining 0.2 percent for the bottom 99 percent).
At $685,742 a year on average in 2012, Kentucky’s top 1 percent earn less than in many states where more Wall Street executives and CEOs reside. But their incomes are still 18 times greater than the average of the bottom 99 percent, which is only $37,124. In all 50 states, inequality is climbing to levels not seen since before the Great Depression.
Source: EPI analysis of IRS data
Despite steep job losses over the last two decades resulting largely from problematic trade policies and economic recession, manufacturing still plays a key role in Kentucky’s economy. A new report by the Economic Policy Institute (EPI) shows that Kentucky has the eighth highest share of employment in manufacturing among the states at 12.4 percent of total jobs, 3.6 percentage points higher than the national average.
Manufacturing is an even larger share of Kentucky’s economy, making up 18.3 percent of state gross domestic product (GDP), the seventh highest share among the states. The report points out that even that number doesn’t fully convey the importance of manufacturing to our economy because it doesn’t account for the significant demand manufacturing generates for inputs from other sectors, including energy and natural resources, construction of new factories, and services provided by accounting, engineering and software firms. After taking those factors into account, manufacturing is responsible for over one-third of U.S. GDP.
Of Kentucky’s 230,000 manufacturing jobs, the biggest concentration by congressional district is in western Kentucky. The second district in central/western Kentucky has the most manufacturing employment with 50,100 jobs followed by the first district in far western and southern Kentucky with 43,300 jobs. Those two districts are among the 35 most manufacturing–dependent of the country’s 436 congressional districts. All of Kentucky’s six districts are higher than the national median.
Source: Economic Policy Institute analysis of data from Bureau of Labor Statistics
*rank among all 50 states and the District of Columbia
The biggest manufacturing subsectors in Kentucky are motor vehicles and motor vehicle parts (46,200 jobs), food production (22,900), chemicals (19,500) and machinery (16,800). Fabricated metal products; primary metal manufacturing; plastics and rubber products; and electrical equipment, appliances and components also have at least 10,000 jobs each. See the table at the end of this piece for more information on manufacturing employment in Kentucky by subsector and how they are distributed across Kentucky’s congressional districts.
The report notes that despite growing challenges, manufacturing jobs typically provide better wages to workers without a college degree than other opportunities. In Kentucky, the average hourly wage for manufacturing workers without a college degree is $17.07—$2.57 or 17.7 percent higher than for nonmanufacturing jobs. Nationally, the manufacturing wage premium is $1.78.
Far from being a dinosaur, manufacturing is central to a dynamic and innovative economy. In fact, it was responsible for 69 percent of all U. S. research and development spending in 2012. The authors note that “a vital manufacturing sector is also essential to meeting national challenges, including rebuilding infrastructure, reducing greenhouse gas emissions, and lowering the nation’s reliance on fossil fuels.”
Between 2000 and 2014, Kentucky lost nearly 78,000 manufacturing jobs with an especially steep drop between 2007 and 2010 during the Great Recession. Another EPI study estimates that since 2001, Kentucky has lost 41,100 manufacturing jobs as a result of the growing U.S.—China trade deficit, caused largely by China’s use of currency manipulation. Along with other legal and illegal policies that include suppressing labor standards, China is able to keep its exports cheap compared to other countries’ goods. Ending currency manipulation in China and other countries would significantly help restore demand for goods manufactured in the U.S.
Source: Economic Policy Institute Analysis of data from the American Community Survey and Bureau of Labor Statistics
The healthcare sector in Kentucky—and in the U.S.—has been growing for years and will continue to grow, in part due to the Affordable Care Act (ACA) and an aging population. A report released today by the Kentucky Center for Economic Policy (KCEP) highlights an important strategy to meet many of these workforce needs: building ladders of opportunity for low-skilled adults to access the new healthcare jobs.
“The growth in healthcare jobs, many of which require only a two-year or four-year degree, is an important opportunity for our state,” said KCEP Research and Policy Associate Ashley Spalding, the report’s author. “The challenge is how to fill the growing need for healthcare workers and make the opportunities open to all Kentuckians.”
Healthcare support occupations in Kentucky—such as nursing aides, home health aides and medical assistants—are projected to grow 25 percent between 2010 and 2020, an increase of just over 13,300 jobs. And healthcare practitioners and technical occupations—including registered nurses, respiratory therapists, and medical and clinical laboratory technologists—are also projected to grow 25 percent, an increase of just over 19,500 jobs.
Some of the expected growth in healthcare jobs is due to the ACA, with more people seeking care now that they are insured. The Medicaid expansion alone has been projected to create nearly 17,000 jobs by 2020. Kentucky’s aging population is also leading to growth in healthcare workforce needs—with the state projected to have nearly 1.3 million people age 60 and over in 2030 (up from 829,000 in 2010)—spurring a need for long-term care providers such as home health aides, among other healthcare workers.
“Given Kentucky’s high rates of unemployment and large share of working families that are low-income, the state should take full advantage of this opportunity,” said Spalding.
In order to meet the demand for healthcare workers, and make the opportunities accessible to currently low-skilled Kentuckians, the report advocates for the state to build on the community college system’s experience with career pathways—a workforce development model that provides educational “pathways” that start with a low level of education and end with a better-paying job, with students receiving targeted supports and earning credentials that build along the way.
The full report is available here: “Developing the Healthcare Workforce: Growing Need Is an Opportunity for Kentucky.”
The healthcare landscape is changing dramatically in ways that increase workforce needs. Greater numbers of people having access to healthcare through the Affordable Care Act (ACA) and an aging population are major drivers. In addition, other provisions of the ACA—such as cost-reduction imperatives and a focus on improved outcomes—are beginning to change how healthcare is delivered. These changes mean a big shift in healthcare workforce needs, including growth in healthcare jobs that require less than a bachelor’s degree. Occupations and industries related to healthcare are projected to continue having the fastest job growth over the next decade.
President’s Community College Proposal Could Help Make Higher Education Accessible for More Kentuckians
The President’s proposal to cover two years of community college tuition for students would help thousands of Kentuckians earn college degrees and take advantage of the resulting job opportunities. And unlike much of the state’s financial aid—as well as Tennessee’s free community college program—the proposal would benefit low-income adults, an important population needing greater access to higher education.
The proposed program would provide funding for three-quarters of the average cost of community college, with participating states picking up the remaining tuition costs. The federal funds for the program would come from the money raised by the President’s new tax proposals. In order to qualify, students would need to attend at least half time and maintain a 2.5 GPA. Only tuition at community colleges is covered; the first two years of tuition at a four-year public university do not qualify, although students will be able to transfer community college credits to four-year institutions.
The President’s proposal would include adult students who have earned a GED or previously graduated from high school. This is different from the new Tennessee Promise program, apparently an inspiration for the President’s proposal, which eliminates tuition and fees at community college only for students enrolling right out of high school. According to census data, 571,215 of Kentucky adults ages 25 to 54 (32.5 percent) had only a high school degree or GED in 2012—and 400,375 (22.8 percent) had some postsecondary education but no degree.
In addition, the President’s program would cover all students’ tuition without taking into account other forms of financial aid. This means that low-income students could use Pell funds to cover the considerable additional costs of college—i.e., housing, books and the costs associated with reducing work hours to attend school. The estimated cost of in-state full-time attendance at a Kentucky Community and Technical College System (KCTCS) institution in 2013-2014 was $14,282: $3,456 for tuition; $1,000 for books and supplies; $6,976 for housing; $800 for personal expenses; and $2,050 for transportation. The maximum Pell grant that year would cover just 40 percent of the estimated cost of attendance. In contrast, Tennessee’s program pays just the balance for tuition and fees once other financial aid, such as Pell grants, is taken into account, meaning it doesn’t provide much or any help to many low-income students.
Financial barriers are a key reason that community college students do not attend or graduate from college. According to a 2012 national Community College Survey of Student Engagement, KCTCS students consider lack of finances to be the issue most likely to cause them to withdraw from college. And higher education in Kentucky—even at the state’s community colleges—is far from affordable for many. Low-income students who receive Pell are more than twice as likely to be in debt as those who do not qualify for Pell—and to have greater debt.
Another significant aspect of the President’s proposal is that it applies both to students attending college half-time and those enrolled full-time. This is important as low-income adults are more likely than traditional-aged college students to attend part-time due to work and family responsibilities. However, it does not cover students who attend college less than half-time, which many low-income adults do.
In order to participate in the proposed program, Kentucky would have to come up with some of the funds—probably about $600 per full-time student—while continuing the state’s existing investments in higher education. But the benefits would be substantial—especially given expected growth in some middle-skills jobs in the state, which require education beyond high school but not a four-year degree, and the higher wages associated with earning a postsecondary degree. A study by the University of Kentucky’s Center for Business and Economic Research shows that the benefits of a KCTCS education across the state include increased earnings for individuals as well as public returns such as improved health and crime reduction. The study finds that having a degree from KCTCS is associated with a $245,000 increase in lifetime earnings over having just a high school degree.
A new study released today by the Institute on Taxation and Economic Policy (ITEP) and the Kentucky Center for Economic Policy (KCEP) finds that low-income Kentuckians pay 49 percent more in state and local taxes as a share of their incomes than the state’s wealthiest one percent pay. The rate for moderate-income and middle class taxpayers is 74 percent higher than what those at the very top pay.
“Kentucky’s upside-down tax system requires the least from those who are most able to pay taxes and whose incomes are growing the most rapidly,” said Jason Bailey, KCEP’s Director. “Widening income inequality is the central challenge of our time, and our taxes shouldn’t make it worse.”
The study, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, analyzes tax systems in all 50 states and factors in all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes. Although Kentucky’s taxes are less regressive than most other states’ as a result of individual and corporate income taxes, the family-size credit for people in poverty and some sales tax exemptions, they are still regressive—meaning the higher one’s income, the lower one’s tax rate.
Kentucky’s overall tax system is regressive largely because of sales and excise taxes, which cost 5.5 percent of income for the bottom 20 percent of Kentuckians but only 0.8 percent for the top one percent. Even with exemptions for groceries and other items like prescription drugs, Kentucky’s sales tax is still very regressive. That’s because the lower one’s income, the larger share of income is spent and not saved.
The ITEP report notes that greater reliance on regressive sales taxes and lower taxes on the wealthy and businesses not only make tax systems unfair, but also make it harder for states to adequately fund basic public obligations such as education.
“We’d be in a lot worse shape, both in terms of fairness and the resources we have to invest in education and health, if it weren’t for our income tax,” said Bailey. “Some in Kentucky would like to chip away at income taxes rather than protect them, but the huge recent budget shortfalls and tax shifts away from the wealthy in states like North Carolina and Kansas are showing us just what a bad idea that is.”
Kentucky has the 33st most regressive tax system among the states according to the report, while Texas, Tennessee and Indiana are among the Terrible Ten states with the most regressive tax systems. That’s primarily because Texas and Tennessee lack broad-based individual income taxes and Indiana’s income tax has a lower, flat rate.
“In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else,” said Matt Gardner, executive director of ITEP. “Upside down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn’t wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”
“There are policy options for Kentucky to increase tax fairness and ensure we have what it takes to invest in our children and our economy,” said Bailey. “For instance, legislators could close income tax loopholes and limit exemptions so that Kentucky’s wealthiest residents and most profitable corporations pay their fair share, while also enacting a refundable state earned income tax credit.”
The Institute on Taxation and Economic Policy (ITEP) is a 501 (c) (3) non-profit, non-partisan research organization that works on federal, state, and local tax policy issues. ITEP’s mission is to ensure that elected officials, the media, and the general public have access to accurate, timely, and straightforward information that allows them to understand the effects of current and proposed tax policies. www.itep.org.
In Kentucky, the wealthiest residents pay the lowest overall state and local tax rate as documented in a new edition of a study by the Institute on Taxation and Economic Policy.
“Who Pays: A Distributional Analysis of the Tax Systems in 50 States” analyzes all major state and local taxes including personal and corporate income, sales and excise and property taxes. It shows that the middle 20 percent of Kentuckians—with incomes ranging from $30,000 to $50,000 a year—pay 10.8 percent of family income, while the wealthiest one percent—whose incomes start at $330,000 but average at $839,500—pay only 6 percent.
For the lowest-income Kentuckians making less than $16,000 a year, their tax rate is 9 percent compared to 6 percent at the top. At a time when skyrocketing incomes at the top and sluggish if any growth in wages at the middle and bottom are leading to growing income inequality, our regressive tax system widens the gap.
Source: Institute on Taxation and Economic Policy
Unfairness in our tax system is largely a result of sales and excise taxes which fall more heavily on low-income Kentuckians: the bottom twenty percent pay 5.5 percent of family income in such taxes, while the top one percent pay just 0.8 percent. Sales taxes are made slightly less regressive by exemptions for groceries, prescription drugs and other personal items, but exemptions do not fix the problem. That’s because low-income families typically spend all of their income to make ends meet, while wealthier Kentuckians can afford to save a portion.
It could be worse: ITEP shows that, in fact, all states have upside-down taxes and Kentucky ranks better than 32 of them. That’s due in large part to our personal and corporate income taxes. In Kentucky, individual income taxes on the lowest 20 percent make up 1.2 percent of family income, and on the top one percent, 5.2 percent. Income tax-free Florida and Texas and flat-taxing Illinois and Indiana are in the top ten most unfair states where the poorest residents pay up to seven times the tax rate that the wealthiest pay.
Many of the best ranked states such as Minnesota, Oregon and Vermont have graduated income taxes at higher rates than Kentucky. Top-ranking states also close loopholes and reduce exemptions for the state’s wealthiest residents and most profitable businesses, and offset some regressivity in their taxes with refundable credits for low-income families such as a state earned income tax credit (EITC). Kentucky does not have an EITC, and its family-sized credit is non-refundable, meaning that the credit will reduce one’s income tax payment to zero, but any remaining portion of the credit is not offered as a refund.
Making a tax system fairer would also make it better able to meet budgetary needs. One of the big problems with regressive taxes is that low tax rates for the wealthy—combined with concentrated income growth at the top—means we are not taxing wealth where it is growing the fastest and revenue will grow more slowly over time. States like Kansas and North Carolina, which have cut income tax rates at the top in a misguided attempt to grow jobs, are facing huge budget shortfalls even as they fail to reap the much-promised economic benefits of these cuts.
As reported in a New York Times story about “Who Pays,” research shows that taxpayers agree that a fair tax system is a progressive one.