Reinstating Kentucky’s Tax on Extreme Wealth a Part of Making State Taxes Fair and Adequate

By Anna Baumann
September 24, 2015

A new brief shows Kentucky is missing out on more than $25 million per year, while perpetuating unfair tax breaks for Kentucky’s wealthiest residents, by not having its own estate tax rules.

Thanks to changes in the federal tax code in the 2000s that eliminated Kentucky’s estate tax, the state has lost out on millions every year that could be used for schools, public health or other important services.

“Recognizing estate taxes generate revenue and make taxes fairer, many states have either decoupled from the federal changes or enacted their own, separate estate taxes,” Anna Baumann, research and policy associate at the Kentucky Center for Economic Policy and author of the report, said. “Restoring Kentucky’s estate tax would generate needed resources for priorities that benefit all Kentuckians.”

Reinstating the tax would affect only a small portion of Kentucky’s wealthiest people, the report affirms, due to exemptions that hold all but the largest estates harmless. And despite what opponents claim, it wouldn’t affect the overwhelmingly vast majority of Kentucky farms or small businesses, thanks to accommodations for inheritors of family businesses.

Kentucky lawmakers have the chance to follow 11 other states and the District of Columbia to decouple from the federal changes that eliminated Kentucky’s estate tax. Three other states have also passed their own estate tax laws since the federal changes.

“A tax system that fails to generate enough resources to meet growing needs at the same time it gives big breaks to those who arguably need them the least only makes the situation worse,” Baumann said. “Restoring Kentucky’s estate tax would be an important step in the right direction.”