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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