Economist Discusses Tax Code Changes

by Gabe Bullard on January 31, 2011

For several years, lawmakers and activists in Kentucky have called for changes to the state tax code. This year, the Republican-led state Senate passed a bill calling for an independent council to be formed to recommend changes.

The bill’s prospects are uncertain in the Democratically-controlled House. But that doesn’t meant legislators aren’t still discussing tax reform. Senate President David Williams recently expressed interest in a proposal from a tax council in Georgia that calls for an end to income tax in favor of an expanded sales tax that covers items like groceries.

Tennessee has a similar—but not identical—tax structure. University of Kentucky economist Ken Troske says that is one idea to consider, but it may have unintended consequences.

“You do need to be careful about the regressivity of it. Does this hurt poor people more than wealthy people?” he says. “The studies that have been done do suggest that issues of regressivity at the state level we’re talking about are less important than federal sales tax type issues.”

Troske says lawmakers considering tax reform should look to compete with nearby states—particularly Illinois, Indiana and Ohio, rather than Tennessee—since they are among Kentucky’s biggest competitors for jobs and residents. And simply looking at changing the tax code isn’t enough.

“This discussion of simply tax reform without an eye toward what we’re spending our money on and is that what we want to be spending our money on is only half the question. I think you need to examine both issues,” he says.

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