• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Kentucky Center for Economic Policy

Kentucky Center for Economic Policy

   

  • About Us
  • Press Room
  • Donate

Research That Works for Kentucky

  • Topics
    • Budget & Tax
    • Criminal Justice
    • Economic Security
    • Education
    • Health Care
    • Jobs & The Economy
  • Types
    • News
    • Op-Ed
    • Research

   

  • About Us
  • Press Room
  • Donate

Copyright © 2022 KyPolicy Privacy Policy Terms & Conditions Sitemap

Analysis

Despite Exemptions, Kentucky’s Sales Tax is Still Regressive

Jason Bailey | December 2, 2014

Some proponents of a local option sales tax are making the claim that the regressive nature of the sales tax is taken care of in Kentucky because the state exempts groceries and other items like prescription drugs from the tax.

But while the sales tax would be even more regressive if those items were included, exempting them doesn’t change the fact that lower-income people pay a higher share of their income in sales taxes than do the wealthy.

More On Budget & Tax: Let’s Learn From Braidy, and Seek More Answers From Each Other

The regressive nature of the sales tax has to do with the fact that poorer people, out of necessity, typically spend all of their income to make ends meet. Higher income people, in contrast, are able to save a portion of their income, meaning that portion is not subject to sales taxes.

The effect of exempting groceries can be seen by comparing Kentucky and South Dakota in a study of the distributional impact of state and local taxes by the Institute on Taxation and Economic Policy. South Dakota has a 4 percent state sales tax and allows local sales taxes of up to 2 percent; the average combined sales tax rate across the state is 5.83 percent, very close to Kentucky’s sales tax of 6 percent. However, South Dakota’s sales tax has a very broad base, including groceries and many services.

As shown in the graph below, including those items makes South Dakota’s tax a higher share of income for those on the bottom of the income scale than Kentucky’s. But who pays the sales tax in each state follows the same distributional pattern of declining as incomes rise, making the tax regressive.

sales tax regressive

Source: Institute on Taxation and Economic Policy

Clearly, a sales tax that includes groceries is more regressive than one that does not. But, as the graph shows, even with the exemptions the poorest 20 percent of Kentuckians pay five times more of their incomes in sales taxes than do the richest one percent of Kentuckians. Any new local sales tax would have the same distribution.

When considering all of the pros and cons of a local option sales tax, it’s important to understand accurately who pays the tax.

 

FacebookTweetLinkedInEmail

Primary Sidebar

Get KyPolicy news updates in your inbox

Sign Up

Sidebar

Perspectives

Let’s Learn From Braidy, and Seek More Answers From Each Other

State Workers Help Us All; It’s Past Time to Help Them Too

Public Resources Should Stay in Public Schools

For Kentuckians Facing Hunger, This Summer Brings a Triple Threat

Addressing Corporate Power Is Key to Tackling Inflation

Other Budget & Tax Items

Two generations holding hands

Analysis

What the New Climate and Health Legislation Will Mean for Kentucky

KY Capitol

Analysis

Temporary Surplus Should Not Trigger Permanent Tax Cuts that Threaten Future Budgets

Decreasing Coins

Analysis

Corporate Tax Break Watch: 2022 General Assembly

Ky. Policy

Footer

Research that works for Kentucky

433 Chestnut Street, Berea, KY 40403

Phone: 859-756-4605

General information and inquiries: info@kypolicy.org

   

Help us make the facts free and accessible to everyone. That’s how Kentucky will thrive.

Donate

  • Topics
    • Budget & Tax
    • Criminal Justice
    • Economic Security
    • Education
    • Health Care
    • Jobs & The Economy
  • Work
    • News
    • Op-Ed
    • Research
  • About Us
  • Press Room
  • Contact

Get KyPolicy news updates in your inbox

Sign Up

Copyright © 2022 KyPolicy Privacy Policy Terms & Conditions Sitemap

made by P&P
Share this ArticleLike this article? Email it to a friend!

Email sent!