Investing in A Stronger Kentucky Cleaning Up, Rather than Piling On - - PowerPoint PPT Presentation

Investing in A Stronger Kentucky

Cleaning Up, Rather than Piling On Tax Breaks for Powerful Interests

September 10, 2016

False Choices

Pensions Education Fiscal Responsibility Investing in Stronger KY Healthy Budget Healthy Communities

Real Choice: Go Forward or Lose Ground

Moving forward means raising new revenue to invest in the foundations of thriving communities by cleaning up

• ur tax code of breaks those

at the top have fought to put there. Moving backward means undermining investments in a stronger state by failing to clean up tax breaks, cutting taxes more for those at the top and leaning even more heavily on those at the bottom and middle.

Source: KCEP analysis of Office of the State Budget Director, BEA data

7.33% 5.85%

5.0% 5.5% 6.0% 6.5% 7.0% 7.5%

The Problem: We Have Less than We Did

General Fund Revenue as a Share of the Economy

Source: OSBD

$12.2 $12.6 $13.1 $10.3 $10.6 $10.9

$- $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 2016 2017 2018

KY Losing More to Tax Breaks than Collecting in Revenue

General Fund Tax Expenditures General Fund Revenue

Source: Institute on Taxation and Economic Policy

9.0% 10.6% 10.8% 9.9% 8.9% 7.4% 6.0%

0% 2% 4% 6% 8% 10% 12% Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% Top 1%

Income Group

Highest Income Kentuckians Pay Smallest Share of Income in Total State and Local Taxes

State and Local Taxes as a Share of Family Income

• Source. Estelle Sommeiller, Mark Price and Ellis Wazeter. 2016. Income inequality in the U.S. by state, metropolitan area, and county. Economic Analysis Research Network (EARN) Report

Income Growth is Going to the Top, Leaving Everyone Else Behind

• 2.6%

60.1%

• 10%

0% 10% 20% 30% 40% 50% 60% 70%

Bottom 99% Top 1% Real income growth for the top 1% and the bottom 99% from 1979 to 2013 in Kentucky

Source: Institute on Taxation and Economic Policy

1.2% 3.6% 4.7% 5.2% 5.2% 5.0% 5.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% Top 1%

Income Group

Income Taxes Flatten Out, Drop Off At the Top

Personal Income Taxes as a Share of Family Income

Source: KCEP analysis of BLS, OSBD data

1.5% 1.6% 1.7% 1.8% 1.9% 2.0% 2.1% 2.2% 2.3% 2.4% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Without Services in the Base, Sales Tax is Shrinking

$2.4 Billion

in 2016

Source: KCEP analysis of State and Local Finance Data Query System, BEA, OSBD

0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

State Property Taxes Shrinking Compared to the Economy

Property Taxes as a Share of Personal Income

$404 Million

in 2016

• Corporate Income Tax: big profits, big loopholes.
• Coal Severance: mining and receipts collapsing.
• Cigarette Taxes: declining consumption, less revenue.
• Estate Taxes: state has not restored this tax since

Congress eliminated it.

Other Factors Influencing Available Revenue

Moving forward means raising new revenue to invest the foundations of thriving communities by cleaning up our tax code of breaks those at the top have fought to put there.

New Revenue for Investments Clean Up Tax Breaks at Top Reliably Supports Stronger KY

Source: Center on Budget and Policy Priorities

Moving backward means undermining investments in a stronger state by failing to clean up tax breaks, cutting taxes more for those at the top and leaning even more heavily on those at the bottom and middle.

Undermines Investments Neglects/Expands Tax Breaks at Top Puts Future Investments at Risk

Convert deductions to a 3% tax credit that provides the same rate of benefit to all filers Bring services, especially luxury services, into the sales tax base Restore 5 cents of property tax lost over last 37 years to cap Enact Combined reporting and a throwback rule. Trim economic development incentives by 20 percent Invest in broadband access, modern infrastructure Equip classrooms with best materials, curricula, supports for learning; reduce class sizes, shrink equity gap Invest in supporting elderly and disabled Kentuckians to stay healthy and happy at home Hire more public defenders, social workers, give raises to public servants

Spend less

• n breaks

benefitting those at the top Invest more in what benefits us all

GOOD: Cleaning Up Tax Breaks

Finances Smart Investments

Source: KCEP analysis of OSBD data

2008 Enacted 2018 Percent Change Real Percent Change

Public Health $73,823,000 $74,548,200 1%

• 15%

Commission for Children with Special Health Care Needs $5,917,000 $5,824,800

• 2%
• 17%

Commission on Human Rights $1,859,100 $1,781,800

• 4%
• 19%

Deaf and Hard of Hearing $933,000 $873,900

• 6%
• 21%

Behavioral Health and Intellectual Disabilities $194,117,600 $180,833,900

• 7%
• 21%

Kentucky Nature Preserves Commission $1,166,500 $1,061,500

• 9%
• 23%

Vocational Rehabilitation $13,134,400 $11,872,700

• 10%
• 24%

Commission on Women $266,200 $237,400

• 11%
• 25%

Libraries and Archives $14,689,300 $13,001,800

• 11%
• 25%

Environmental Protection $26,118,000 $22,479,100

• 14%
• 27%

Auditor of Public Accounts $5,828,300 $4,948,600

• 15%
• 28%

Kentucky Educational Television $16,816,100 $13,923,200

• 17%
• 30%

Board of Elections $4,861,900 $3,989,300

• 18%
• 31%

Heritage Council $900,000 $717,100

• 20%
• 33%

Registry of Election Finance $1,571,700 $1,231,700

• 22%
• 34%

Attorney General $14,113,100 $11,034,400

• 22%
• 34%

Secretary of State $2,298,100 $1,784,100

• 22%
• 35%

Health Policy $625,600 $441,500

• 29%
• 41%

Arts Council $4,182,500 $2,640,700

• 37%
• 47%

Energy Development and Independence $2,341,500 $1,249,200

• 47%
• 55%

BAD: Neglecting or Expanding Tax Breaks

Undermines Investments

invest in people, communities build human capital earn financial capital pay taxes

GOOD: Cleaning Up Income Tax Breaks

Key to Greater Benefit for All

BAD: Income Tax Cuts

Hurt Investments, Families

Louisiana

• Largest tax cut package in state’s history in 2008,

including big income tax cuts, tax credits to corporations.

• State facing a $2 billion shortfall in FY 2017, Gov

Edwards has talked about shutting down hospice services and college campuses to convey gravity of crisis, has proposed a tax hike package totaling $836 million. Kansas

• 2012-13 income tax cuts have led to sales and

cigarette tax increases as well as reduction in itemized deductions.

• Consecutive deep revenue shortfalls have caused

across the board cuts; borrowing from highway fund, corrections, children’s programs to balance budget; teacher, counselor, librarian, nurse layoffs in schools.

• Recovery from recession has lagged behind nation;

revenue growth stagnant; share of the national economy has declined; state faces another credit rating downgrade. North Carolina

• 2013 to present “Great Tax Shift” has cut individual and

corporate income tax rates, expanded and raised the sales tax, eliminated estate tax and EITC. When all changes are fully phased in, -$2 billion annual revenue impact.

• On net, top 1 percent has received avg tax cut of

$15,500. People earning $44,000 a year get $167 cut, while people earning < $12,000 get tax increase of $10.

• 2014-2015, income growth lagged behind all neighbor

states, including KY.

Myth: Income tax cuts encourage job creation.

Fact: Very few people employ others, meaning that tax cuts are more for the wealthy than for so-called job creators.

Myth: Lower income taxes will draw people to KY.

Fact: Very few people move and when they do it’s for work, family, and other personal reasons, not for taxes.

Myth: Cutting income taxes will generate more revenue in the long term.

Fact: No evidence that tax cuts pay for themselves. Less revenue to invest today means compounding fiscal problems, shrinking investments in healthy, educated, thriving communities – building blocks of a strong economy.

BAD: Cutting Income Taxes

Doesn’t Boost Economy

4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenue as a % of State Personal Income

• Reduce income tax breaks; drill the well where the water runs.
• Bring services into the sales tax base; connect with consumer

economy.

• Freeze property tax cap; allow taxes to grow with

economy/property values.

• Raise tobacco taxes; account for fiscal, economic and human

toll.

• Increase hospital provider tax; get hospitals to chip in for great

deal that is the Medicaid Expansion.

GOOD: Cleaning Up Tax Breaks Reliably, Fairly Generates Revenue for Investments

Source: KCEP analysis of OSBD data

23% 41%

• 6%
• 10%

0% 10% 20% 30% 40% 50%

Sales and Use Tax Individual Income Tax All Other Taxes

Percent Revenue Growth, 2007-2016

Individual Income Taxes Protect Kentucky’s Investments

BAD: Shifting to Sales Taxes

Is a Tax Cut for the Wealthy, Jeopardizes Investments

Low- and middle-income families pay more in sales taxes as a share of income – families for whom the economy is underperforming. Wealthier families pay less – those benefitting most from economic growth today. Sales taxes don’t grow as well as income taxes over the long term.

Source: Institute on Taxation and Economic Policy

2016 Income Group Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% Top 1% Revenue Impact Average Income in Group $11,000 $27,000 $44,000 $71,000 $115,000 $225,000 $904,000

Sales tax increase from 6% to 7%

Tax Change as % of Income 0.6% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% +$559 Million Average Tax Change +$63 +$146 +$200 +$254 +$324 +$407 +$909

Top Individual Income Tax Rate from 6% to 5%

Tax Change as a % of Income –0.0% –0.2% –0.3% –0.4% –0.4% –0.5% –0.7%

• $554 Million

(w/o federal

• ffset)

Average Tax Change –4 –56 –139 –252 –513 –1,222 –6,305

BAD: Heavier Reliance on Sales Taxes Falls Hardest on Low Income KYians

Real Choice: Go Forward or Lose Ground

Moving forward means raising new revenue to invest in the foundations

• f thriving communities

by cleaning up our tax code of breaks for those at the top.

Questions? Comments?

Anna Baumann 859-671-0236 anna@kypolicy.org www.kypolicy.org @kypolicy