Importance of Kentucky local government Importance of Kentucky local - - PowerPoint PPT Presentation

Importance of Kentucky local government Importance of Kentucky local government

Local governments have challenges h h d generating the revenue they need

• Constitutional & statutory limits

Constitutional & statutory limits

– Property tax limits – Limits on types of taxes they can levy yp y y – Limit on general revenue sharing

• Other issues

Other issues

– Role of business tax incentives – Lack of a commercial & business base needed to make occupational & sales taxes viable – Loss of taxes due to industry declines

Kentucky’s property taxes are low Kentucky s property taxes are low

• $21 in state & local

State and local property tax revenue per $1 000 in

$21 in state & local property tax revenue per $1 000 in state personal

$36

tax revenue per $1,000 in personal income (2010)

$1,000 in state personal income (2009‐2010)

• 42% lower than US
• 42% lower than US

average of $36 R k K k 45th

$21

• Ranks Kentucky 45th

among states

Source: Computed from Census Bureau Census of Governments

United States Kentucky

Real Property Tax Rates in Louisville/Jefferson C H F ll D i ll County Have Fallen Dramatically

35% d li i L i ill d 42% d li i J ff C t i 1978 35% decline in Louisville and 42% decline in Jefferson County since 1978.

$0 566

$0 600

$0.566

$0.500 $0.600 ue

$0.218 $0.367

$0.300 $0.400 00 of Assessed Valu

1978 2012

$0.126

$0.100 $0.200 Per $10

2012

$‐

Louisville Jefferson County

Business Tax Incentives Another h ll Challenge

• Abatement of 1%
• ccupational tax part of

many tax incentives h f

• Growth of tax

increment financing

• Cities can exempt

126 large companies in Jefferson County have

• Cities can exempt
• ccupational &

property taxes of new Jefferson County have received final approval for tax incentives according to manufacturing facilities for up to 5 years g state database

Sales Tax is a Regressive Tax Sales Tax is a Regressive Tax

6.0%

Who Pays Sales Taxes Vs. Who Pays Income Taxes in Kentucky

5.0% 4.0% 2.0% 3.0% Sales & Excise Taxes Individual Income Taxes 1.0% 0.0% Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% Top 1% Source: Institute on Taxation and Economic Policy

Who Pays? Who Pays?

Source: Institute on Taxation and Economic Policy

Other Challenges with l l Local Option Sales Taxes

• Not deductible against federal taxes like
• t deduct b e aga st ede a ta es

e

• ccupational tax & property tax
• Limited growth of sales tax revenue because not

g modernized

• Loss of state sales tax revenue because of border

& consumption effects

• Not a solution for localities without a sufficient

i l b commercial base

• Problem with earmarking for specific projects

Sales Tax Base is Eroding Sales Tax Base is Eroding

2 3% 2.4%

Sales Tax Revenue as Percent of State Personal Income

2.2% 2.3% 2.0% 2.1% 1.8% 1.9% Source: KCEP analysis of OSBD, BEA data 1.7% FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY 10 FY 11 FY 12 FY 13

Context Needed for Local Option Sales Tax

• Need for a comprehensive

Need for a comprehensive tax reform package that includes sales tax modernization & refundable EITC to address fairness

• Can’t be a tax swap or

include a tax offset—that ld i l hif would simply shift responsibility

Considerations for local taxation Considerations for local taxation

• Broad view of the issue of local

taxation should be taken

• Tax fairness and revenue sustainability

Tax fairness and revenue sustainability must be part of the conversation

• Need to address decline in the

property tax property tax

– Recall provisions – Create a circuit breaker & amend homestead exemption p

• Greater scrutiny & disclosure of tax

breaks