Kentucky’s tax system has long been recognized as outdated and unjust.  It puts a higher responsibility for paying taxes on the poorest Kentuckians, and is marked by exemptions and loopholes for the wealthy and corporations.  As currently designed, our tax system results in the chronic under-funding of education, health care and other critical needs. Poor political leadership and adherence to “revenue neutral” tax policies has produced record levels of state debt and rising costs of tuition and other fees.

KFTC believes that Kentucky deserves better.  Our tax system should be fair; it should support needed investment in education and public structures; it should be adequate; and it should promote the health and well being of Kentuckians. 

The chart below tells an important story. The orange section shows a growing gap between the amount of money expected to come into the state through our tax system and the amount of money that will be needed just to pay for the level of services we had in 2001. The blue section of the graph shows additional investments (more than $1 billion) needed to make progress in key areas like education, health care, and the justice system. (For more information see Kentucky’s Real Budget Report, 2005)

Evidence of inadequate public investment is all around us.

• Kentucky ranks 50th in per capita spending on education. (2005 Governing Magazine)
• In 2005 Kentucky fell five spots to 42nd in child well-being. (Annie E. Casey Foundation)
• Poverty in KY rose from faster than in all but one state from 2003 to 2004. (U.S. Census Bureau, 2005)
• Since 2001, Kentucky has endured six rounds of budget cuts totaling about $1 billion.
• By 2010 Kentucky will be $2.3 billion dollars short of the money necessary just to provide the level of services we had in 2001. (The Fox Report to the legislature, 2001)
• In the last three years Kentucky has taken on $3.99 billion in new debt, more than we did in the previous eight years. (Lexington Herald-Leader, April 30, 2006)

A second chart shows the lack of fairness in our current tax system. It shows that the bottom 80% of income earners pay a higher percentage of their income in state and local taxes than the highest earners. Kentucky’s tax system is regressive, meaning that it takes the biggest bite out of the incomes of poor people. (This chart was prepared by the Institute for Taxation and Economic Policy in 2006.)

KFTC believes Kentucky can do better. We’ve heard from many legislators that there is “no
appetite” for additional changes to Kentucky’s tax system. But as KFTC member Rully Urias points out, “Kentuckians are hungry for leadership.” KFTC is doing our part by developing policy alternatives, educating lawmakers and the public about tax and budget issues, building a strong coalition, and advancing a positive, responsible vision for the role of government and the future of our state.

KFTC supports tax reforms consistent with these principles:

• Fairness (Does it ask the most of those most able to pay?)
• Investment in the future (Does it provide adequate funding for education, health care and other essential services?)
• Health and well-being (Is consistent with the goal of improving the health of our population?)
• Urgent (Does it deal with Kentucky’s financial problems now, or push them onto future generations of tax payers?)

In 2007 KFTC and our allies developed model legislation consistent with those principles. House Bill 411 was introduced by Rep. Jim Wayne. Taken together, the bill would have raised $400 million and provided $85 million in assistance for working poor families. Click on the items below to download information about the four components of HB 411.

• Preserve Kentucky’s Estate Tax so doesn’t disappear due to changes in federal policy.
• Establish a state Earned Income Tax Credit to assist working poor families.
• Create a more Progressive Income Tax that asks a bit more at the highest levels of income.
• Extend the Sales Tax to a limited number of services.

    While HB 411 did not move in 2007, it generated important discussions about meaningful and fair solutions to our financial crisis, and pledges from legislators to work with KFTC toward tax reform proposals for the 2008 General Assembly. KFTC continues to organize, offer workshops and educate the public and lawmakers so that, in time, these ideas will gain public support.