Working folks here in Derby City are certainly aware of the fact that they share a tax burden significantly higher than the national average. But yesterday, a report was released indicating that Louisville’s combined local tax burden is the fourth highest in the country.
The report, released by the Office of Revenue Analysis of the Government of Washington, D.C., reviewed the estimated property, sales, auto and income taxes a family paid in 2011 in the largest city in each state. The differences were stark. A family of three earning $150,000 in Cheyenne, Wyoming, had a tax burden of 3.1%, or $4,702; lower than any other city. In Louisville, Kentucky that same family would have paid $18,008, or 12% of its income. And Louisville working families earning $25,000 to $50,000, actually pay a higher total rate of 14.4%. Again, this is excluding federal taxes.
Interestingly, the report shows a correlation between tax rates and unemployment. Cheyenne, with a 3.1% tax burden has a 5.2% unemployment rate, while Louisville’s unemployment rate hovers at 7.9%.
According to Edward Wyatt, fiscal analyst for the Office of Revenue Analysis, while tax rates are certainly a factor in the tax burden on families, it is more the existence of certain kinds of taxes that determines whether families pay through the nose or barely at all come mid-April. Personal income tax is one of the key factors. Kentucky has a personal income tax, and Metro Louisville has a regressive flat income tax it calls an “Occupational License Fee.”
Unlike progressive income taxes, the Occupational License fee percentage does not increase as earnings increase; low-wage earning families pay the same rate as wealthy earners. And there are no deductions or exemptions for family size.
Tax Rates and Tax Burdens in the District of Columbia — A Nationwide Comparison, reviewed the cities where a family of three in different income brackets would spend the largest and smallest percentages of their income on state and local taxes. In order to reflect the respective rank in all income levels measured by the report, the study considered all of them for the purposes of the ranking. As a result, the cities with highest taxes on the list had the highest combined scores and the cities with the lowest taxes had the lowest scores. The report covers the largest city in each state, as well as Washington, D.C. All estimates are for the 2011 fiscal year. The study also reviewed data for these cities from the U.S. Census Bureau, including the occupational breakdown of the city's workforce, and income, poverty and home value data, all for 2011. From the Bureau of Labor Statistics, the study reviewed the unemployment rates for these cities as of December 2012.
This report comes on the heels of a heated battle at Louisville’s Metro Council, where Democrats and Republicans were fighting over a proposed tax increase. Seven of the Democrats on the Metro Council went on record in support of a 20% increase in the city’s insurance premium tax.
Primary sponsors of the tax increase proposal included Democrat councilmembers Tina Ward-Pugh, Mary Woolridge, Attica Scott, Brent Ackerson, Rick Blackwell, Madonna Flood, and Tom Owen. The nine Republican members of the council voiced opposition to the plan.
The Democrats sought to collect an additional $10 million annually, to be used to construct “affordable housing” for the disadvantaged. The funds would come from taxes levied upon automobile, real estate, healthcare, and general liability insurance premiums. Again, this would add to a regressive flat tax, with no exemptions for family size or earning capacity.
“It’s just not well thought through, and I am thinking there is no way in the world I could support this,” said Metro Councilman Kelly Downard, a Republican who represents the Prospect area.
When supporters of the 20% tax increase learned that Kentucky law would not allow the revenue created to be “earmarked” for affordable housing, all but three Metro Councilmen withdrew their support. With only Democrats Ward-Pugh, Scott, and Owen backing the tax, the measure was withdrawn from Council consideration.
At the same time, Democrats at a state and local level—including Mayor Greg Fischer, Governor Steve Beshear, Lt. Governor Jerry Abramson, and members of the Louisville Metro Council and the Kentucky General Assembly—are trying to push through a Local Option Sales Tax amendment to the state constitution. The plan is to allow cities like Louisville to charge an additional 1% local sales tax—on top of the 7% state sales tax already being charged—to help fund a wish list of local projects, such as a bicycle path encircling Jefferson County.
Louisville’s only daily newspaper, the Democrat-leaning Courier-Journal, is strongly supporting these tax increase proposals, and has even conducted a push-poll which purportedly shows overwhelming support for the increased sales tax. (Supporters are using the acronym “LIFT” in reference to the Local Option Sales Tax initiative; the initials “L.O.S.T.” having been determined to convey an unhelpful message.)
And, while the Courier-Journal continues to beat the drum for tax increases on Louisville’s working families, they have been conspicuously silent about the fact that Louisvillians are already laboring under the Fourth Highest Tax Burden in the country.