In Fiscal Year (FY) 2016, Kentucky collected $17.1 billion in state and local taxes—or $3,852 for every man, woman, and child. While this is an impressive sum of money, it tells us little about whether or not the average Kentucky taxpayer can afford this level of taxation?
To better answer this question, this analysis will calculate Kentucky’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.
Unfortunately for taxpayers, as shown in Chart 1, Kentucky’s state and local tax burden (tax collections divided by private sector personal income) was the tenth highest in the nation for FY 2016 at 16.1 percent—or 13 percent above the national average of 14.3 percent.
#Kentucky state and local #taxburden in FY 2016 was the 10th highest in the nation at 16.1%— 13% above US average of 14.3% http://bit.ly/2FX9C8F @keypolicydata #KYpolitics #KYleg #PolicyData (click to tweet)
As shown in Chart 2, Kentucky’s tax burden has increased over time by 110 percent to 16.1 percent in FY 2016 from 7.6 percent in FY 1950.
To put Kentucky’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, Kentucky’s 16.1 percent tax burden is greater than these combined industries: retail trade (7 percent), construction (6.6 percent), and educational services (1.1 percent).
Kentucky’s higher than average state and local tax burden is driven by a significant individual income tax burden (5.3 percent, 4th highest), corporate income tax burden (0.7 percent, 7th highest), and all other taxes burden (2.7 percent, 15th highest) that partially offsets the other lower taxes such as the low property tax burden (3.3 percent, 11th lowest), and sales tax burden (3.3 percent, 24th lowest).
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Kentucky—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
The 20 Kentucky counties with the highest local government tax burden include:
The 20 Kentucky counties with the lowest local government tax burden include:
Note: The tax burdens for counties with large military bases, such as Christian, McCreary, and Franklin Counties, are inflated because, by definition, military compensation is excluded from the denominator as it does not constitute private sector activity.
Additionally, military activity often physically crowds-out the private sector pushing it out into surrounding areas. While a significant portion of surrounding private sector activity is due to the presence of the base, it is counted in the counties where the business is physically located. Thus, the tax burden, as a percent of private sector personal income, is overstated in counties with military bases and understated in surrounding counties.
Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?
Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.