Poverty expert says tax commission suggestions are a start but could go further to help low income families

12/19/2012 05:24 PM

Kentucky would be “moving in the right direction” by adopting the recommendations of a task force that that call for lowering income tax rates but spreading out what services are taxed, said one of the state’s leading poverty researchers.

James Ziliak, the director of the University of Kentucky’s Center for Poverty Research, said those changes could ease the burden on low income families in the state. He specifically cited the creation of an Earned Income Tax Credit that would give money back to the lowest earners, essentially offsetting what they would have to pay in sales taxes on services and goods.

“Maybe its not as far as I would like to see as an economist, but again I think its a step in the right direction of kind of base broadening and spreading the burden out a bit more,” Ziliak said (at 6:20).

Lowering the income tax rates is one of the most effective tools, Ziliak said. Currently most Kentuckians — those earning between $8,001 and $75,000 a year — pay 5.8 percent in state taxes on their wages. The Governor’s Blue Ribbon Commission on Tax Reform recommends slashing that to 5.5 percent.

“We are one state of 50 in the U.S. and we have aggressive states on our borders in terms of their tax policy so I think to maintain some competitiveness with our neighbors we have to move in this direction,” Ziliak said (at 3:00).

Some Kentucky politicians, including several Republican gubernatorial candidates in 2011, called for eliminating the individual income tax and shifting to rely largely on consumption taxes. Ziliak said that model isn’t necessarily ideal.

“I certainly am not advocating moving to a Tennessee type model where we abolish the income tax. But I do think having fewer deductions and lower rates will put us more in the path of say our neighbor to the north Indiana which has had stable income tax collections over the years with broad base lower rate” (at 3:55).

The legislature now gets to debate the recommendations the commission submitted in a report on Monday. It remains to be seen how hard Gov. Steve Beshear will push lawmakers to enact those changes in 2013.


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