Now is the time for Kentucky to reform its tax code to more aggressively compete for jobs and people is the key theme of a new report by the Tax Foundation, a nonprofit think tank specializing in state-level tax reform. “At a time of rapid exodus from high-tax, high cost-of-living states, Kentucky has a unique opportunity to build a name for itself as a highly sought-after destination to live and work, and structural tax modernization will play a critical role in any such effort,” the report’s authors write.
The Tax Foundation is a nationally renowned authority on tax reform and has successfully worked in states such as North Carolina, Nebraska, and Wisconsin. In the summer of 2021, the Kentucky Chamber provided the Tax Foundation with a grant to conduct an independent analysis of Kentucky’s tax code and recommend options for reform.
“The Tax Foundation has a strong track record of supporting other states in implementing pro-growth tax reform,” said Kentucky Chamber President & CEO Ashli Watts in a press release. “This new report provides critical data, valuable context, and a unique nationwide perspective on the various steps Kentucky might take to reform its tax code to ensure the Commonwealth can effectively compete for jobs and workers in today’s ever-changing economy.”
The independent report produced by the Tax Foundation addresses several areas of Kentucky tax policy, including business and individual income, local taxes, sales and use taxes, property taxes, gas taxes, and unemployment insurance taxes.
In addition to providing valuable data, context, and insights on tax policy in Kentucky and other states throughout the nation, the report offers a menu of reform options for policymakers to study. Some of the reports top reform recommendations include:
- Reducing taxes on individual and business income to more effectively compete with neighboring states like Indiana and Tennessee
- Improving the tax treatment of capital investments made in Kentucky by businesses
- Repealing economically harmful taxes such as the Limited Liability Entity Tax
- Reforming Kentucky’s inventory tax credit to make it more effective at offsetting local inventory taxes
- Enhancing Kentucky property tax system by repealing taxes on inheritances and reducing property tax burdens on small business owners
- Stabilizing how Kentucky taxes gas and fuel to pay for roads and infrastructure
- Restructuring Kentucky’s unemployment insurance tax system
The report describes how implementation of these changes could shift Kentucky’s ranking on the Tax Foundation’s annual Business Tax Climate Index into one of the top 10 states in the nation. Kentucky currently ranks 19th in the nation, just above 18th ranked Tennessee. Prior to the 2018 reforms, Kentucky ranked 36th in the nation.
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