kftc’s tax justice campaign kftc’s principles of tax reform kftc leaders developed these...
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Local Option Sales TaxPresentation to Kentuckians For The Commonwealth
Jefferson County Chapter
December 11, 2013
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KFTC’s Tax Justice Campaign
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KFTC’s Principles of Tax Reform
KFTC leaders developed these principles to create and evaluate tax policy:
• Fair• Adequate• Supportive of the well-
being of Kentuckians
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Importance of Kentucky local government
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Local governments have challenges generating the revenue they need
• Constitutional & statutory limits– Property tax limits– Limits on types of taxes they can levy– Limit on general revenue sharing
• 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
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Kentucky’s property taxes are low
• $21 in state & local property tax revenue per $1,000 in state personal income (2009-2010)
• 42% lower than US average of $36
• Ranks Kentucky 45th among states
Source: Computed from Census Bureau Census of Governments
United States Kentucky
$36
$21
State and local property tax revenue per $1,000 in personal income (2010)
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Real Property Tax Rates in Louisville/Jefferson County Have Fallen Dramatically
35% decline in Louisville and 42% decline in Jefferson County since 1978.
Louisville Jefferson County $-
$0.100
$0.200
$0.300
$0.400
$0.500
$0.600 $0.566
$0.218
$0.367
$0.126
19782012
Per $
100
of A
sses
sed
Valu
e
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Business Tax Incentives Another Challenge
• Abatement of 1% occupational tax part of many tax incentives
• Growth of tax increment financing
• Cities can exempt occupational & property taxes of new manufacturing facilities for up to 5 years
126 large companies inJefferson County have
received final approval fortax incentives according to
state database
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Sales Tax is a Regressive Tax
Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% Top 1%0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Who Pays Sales Taxes Vs. Who Pays Income Taxes in Kentucky
Sales & Excise TaxesIndividual Income Taxes
Source: Institute on Taxation and Economic Policy
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Who Pays?
Source: Institute on Taxation and Economic Policy
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Other Challenges with Local Option Sales Taxes
• Not deductible against federal taxes like occupational tax & property tax
• Limited growth of sales tax revenue because not modernized
• Loss of state sales tax revenue because of border & consumption effects
• Not a solution for localities without a sufficient commercial base
• Problem with earmarking for specific projects
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Sales Tax Base is Eroding
Source: KCEP analysis of OSBD, BEA data
FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY 10 FY 11 FY 12 FY 131.7%
1.8%
1.9%
2.0%
2.1%
2.2%
2.3%
2.4%
Sales Tax Revenue as Percent of State Personal Income
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Context Needed for Local Option Sales Tax
• 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 would simply shift responsibility
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Considerations for local taxation
• Broad view of the issue of local taxation should be taken
• Tax fairness and revenue sustainability must be part of the conversation
• Need to address decline in the property tax– Recall provisions– Create a circuit breaker & amend
homestead exemption• Greater scrutiny & disclosure of tax
breaks