May 22, 2017

Kentucky Center for Economic Policy: Any Way You Slice It, A Shift To Consumption Taxes Will Hurt Kentucky

ITEP Work in Action

According to ITEP, replacing all of Kentucky’s income tax revenue with sales tax revenue would require an increase in our sales tax rate to 13.3 percent – more than double the current 6 percent rate and by far the highest state sales tax rate in the country (next highest is California at 7.5 percent). But since a shift would slow revenue growth, the initially revenue-neutral impact would become increasingly negative over time, leaving legislators to choose between raising the sales tax rate even higher, increasing other taxes and/or cutting funding for schools, child welfare and other investments. In states that have experimented with tax-shifting, income tax cuts have not paid for themselves, but have led to education funding cuts, credit rating downgrades, and the need to raise other revenue sources.

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