KFTC is working for a tax system that allows us to fairly share the responsibility of investing in good, quality public services that we can count on.  We believe that no family should taxed more than they’re able to contribute, and that our contributions should be able to create good schools, offer help for the ill and disabled, and ensure public safety and protections.

Kentucky’s tax system has long been recognized as outdated and unjust.  It puts a higher responsibility for paying taxes on lower-income Kentuckians, and is marred by exemptions and loopholes for the wealthy and corporations.  As currently designed, our tax system results in the chronic underfunding 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 fees at state universities.

Kentuckians deserve better

Our tax system should:

• Be fair.   The responsibility of paying taxes should be shared so that everyone contributes their fair share. Low and middle income Kentuckians shouldn't be asked to pay more than the wealthiest citizens of the state.
• Be adequate. Our taxes are important investments in education, public safety, and health—services and structures that we all need.
• Promote the health and well-being of Kentuckians.
  

Background

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 is facing a nearly $1 billion budget shortfall—about 11% of our entire General Fund.
• Kentucky is ranked 35th in educational attainment by the Long-term Policy Research Center.
• Kentucky ranks 41st in child well-being (Annie E. Casey Foundation)
• Poverty in Kentucky 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.

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 2009.)

KFTC believes Kentucky can do better

We’ve heard from some 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. The responsibility of paying taxes should be shared so that everyone contributes equitably. Low and middle income Kentuckians shouldn't be asked to pay more than the wealthiest citizens of the state.
• Investment in the future. Our taxes should support quality public services we can count on.
• Health and well-being. Tax policy should be consistent with the goal of improving the health of our population.
• Urgent Tax policy should deal with Kentucky’s financial problems now, not push them onto future generations
  

For the past several legislative sessions, KFTC and our allies have helped develop and support model legislation consistent with these principles. The Kentucky Forward bill, introduced by Rep. Jim Wayne with a number of cosponsors in 2008, 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 this legislation.

• Preserve Kentucky’s Estate Tax so it 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.

The Kentucky Forward bill is one set of ideas—there are other progressive tax policies that would also benefit Kentucky—but it has set the bar for progressive tax reforms in the Kentucky.  It was the starting point for the 2008 budget discussions in the House, and a version of the bill passed the House, but the Senate failed to pass any revenue reforms. In 2008, the EITC was separated out into House Bill 566, to be paid for by restoring the estate tax.  HB 566 passed the House Appropriations & Revenue Committee but House leaders refused to call the bill for a vote on the House floor.

New and similar legislation will be introduced in the 2012 General Assembly. Follow these efforts here.