Local Option Sales Tax Presentation to Kentuckians For

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Local Option Sales Tax Presentation to Kentuckians For The Commonwealth Jefferson County Chapter December

Local Option Sales Tax Presentation to Kentuckians For The Commonwealth Jefferson County Chapter December 11, 2013

KFTC’s Tax Justice Campaign

KFTC’s Tax Justice Campaign

KFTC’s Principles of Tax Reform KFTC leaders developed these principles to create and evaluate

KFTC’s Principles of Tax Reform KFTC leaders developed these principles to create and evaluate tax policy: • Fair • Adequate • Supportive of the wellbeing of Kentuckians

Importance of Kentucky local government

Importance of Kentucky local government

Local governments have challenges generating the revenue they need • Constitutional & statutory limits

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

Kentucky’s property taxes are low • $21 in state & local property tax revenue

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 45 th among states State and local property tax revenue per $1, 000 in personal income (2010) $ 36 $ 21 United States Kentucky Source: Computed from Census Bureau Census of Governments

Real Property Tax Rates in Louisville/Jefferson County Have Fallen Dramatically 35% decline in Louisville

Real Property Tax Rates in Louisville/Jefferson County Have Fallen Dramatically 35% decline in Louisville and 42% decline in Jefferson County since 1978. $ 0. 600 $ 0. 566 Per $100 of Assessed Value $ 0. 500 $ 0. 400 $ 0. 367 1978 2012 $ 0. 300 $ 0. 218 $ 0. 200 $ 0. 126 $ 0. 100 $- Louisville Jefferson County

Business Tax Incentives Another Challenge • Abatement of 1% occupational tax part of many

Business Tax Incentives Another Challenge • Abatement of 1% occupational tax part of many tax incentives • Growth of tax 126 large companies in increment financing Jefferson County have • Cities can exempt occupational & property received final approval for taxes of new tax incentives according to manufacturing facilities state database for up to 5 years

Sales Tax is a Regressive Tax Who Pays Sales Taxes Vs. Who Pays Income

Sales Tax is a Regressive Tax Who Pays Sales Taxes Vs. Who Pays Income Taxes in Kentucky 6. 0% 5. 0% 4. 0% Sales & Excise Taxes 3. 0% Individual Income Taxes 2. 0% 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? Source: Institute on Taxation and Economic Policy

Who Pays? Source: Institute on Taxation and Economic Policy

Other Challenges with Local Option Sales Taxes • Not deductible against federal taxes like

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

Sales Tax Base is Eroding Sales Tax Revenue as Percent of State Personal Income

Sales Tax Base is Eroding Sales Tax Revenue as Percent of State Personal Income 2. 9% 2. 7% 2. 5% 2. 3% 2. 1% 1. 9% 1. 7% FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 Source: KCEP analysis of OSBD, BEA data

Context Needed for Local Option Sales Tax • Need for a comprehensive tax reform

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

Considerations for local taxation • Broad view of the issue of local taxation should

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