Kentucky Taxes Hit Poor & Middle Class Far Harder than the Wealthy

Low- and middle-income families in Kentucky pay a far higher share of their income in state and local taxes than do the richest families in Kentucky, according to a new study by the Institute on Taxation & Economic Policy (ITEP).

“Kentucky lawmakers may be forced to make difficult tax and spending decisions in the upcoming year,â€ said Matthew Gardner, ITEP’s executive director and lead author of the study, titled Who Pays? A Distributional Analysis of the Tax Systems in All 50 States. “They should be mindful that the Kentucky tax system already falls most heavily on the very poorest families in the state.â€

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Kentucky’s Tax Code: The Poor and Middle Class Pay More

When all Kentucky taxes are totaled up, the study found that:

• Kentucky families earning less than $15,000—the poorest fifth of Kentucky non-elderly taxpayers—pay 9.4% of their income in Kentucky state and local taxes.


• Middle-income Kentucky taxpayers—those earning between $29,000 and $47,000—pay 11.0% of their income in Kentucky state and local taxes.


• But the richest Kentucky taxpayers—with average incomes of $957,500—pay only 7.1% of their income in Kentucky state and local taxes.

“No one would ever design an income tax with lower tax rates for the best-off taxpayers,â€ noted Gardner. “But that is exactly what Kentucky’s tax system overall does: it allows the very wealthiest individuals to contribute less of their income, on average, than middle- and lower-income families must pay. In other words, Kentucky has an unfair, regressive tax system.â€

Kentucky Sales, Excise, Property Taxes Hit Low-Income Families Hardest

The main reason for the unfairness of Kentucky taxes is the state’s reliance on regressive sales and excise taxes, which fall disproportionately on the worst-off families, and on property taxes. The state’s one progressive tax, the income tax, is not enough to offset the unfair impact of these other taxes.

“Kentucky lawmakers have a straightforward strategy available for addressing its woeful tax fairness record. Relying more heavily on income taxes, and less on regressive sales and excise taxes, could help make the Kentucky tax system substantially less unfair,â€ said Gardner.

Some of the recommendations offered by Gardner could be implemented if the Kentucky legislature passes Rep. Jim Wayne's Kentucky Forward Bill.  This bill would go a long way towards addressing the inherent unfairness in Kentucky's tax code and would also help alleviate $1.61 billion (and growing) budget deficit.