Friday, January 1, 2010

Happy New Year.

The C-J ran an article today concerning tax reform. Some months ago I (and other religious leaders) were scheduled to meet with the Governor. I was unable to attend, however, so I sent a letter instead. My letter was about tax reform. I am, therefore, glad that the issue is getting some attention. Taxation in Kentucky is in need of reform.

Currently in Kentucky low-and middle-income families pay more as a share of their income in taxes than do Kentuckians with high-incomes. The tax burden needs to be lifted from the shoulders of low-and middle-income families.

In 2007, the poorest 20% of Kentucky residents paid 7.8% of their incomes in state and local taxes. The richest 1% paid 5.8% of their income in Kentucky taxes. Fairness would dictate the opposite--that those who can best afford to spend a greater percentage of their income for the common good do so.

The wealthiest 20% of Kentuckians have more income than the poorest 80% put together. Furthermore, between 1988 and 2008 Kentuckians in the top 1% saw
their (inflation-adjusted) average incomes rise by 34%. Meanwhile, middle-income earnings grew by 5.9%, and the poorest 20% saw their real incomes rise by just 3.5% over this period. Taxing the poor is not only immoral, it is not apt to raise much revenue (hence Kentucky's budget woes).

Kentucky needs a new "property" tax. Property is more than real-estate. What should be taxed is one's net worth--a levy based on the aggregate value of all household holdings, including real-estate, but also including cash, stocks, bonds, trusts, annuities--anything of value.

Kentucky could require declaration of the tax payer's balance sheet (assets and liabilities), and from that ask for a tax on net worth (assets minus liabilities), as a percentage of the net worth exceeding a certain level.

India, Switzerland, and France all impose this sort of tax.

Further, the sales tax should be eliminated altogether (vice taxes would remain). Income tax should be retained, but re-structured. The bottom third of households (with regard to income) should be exempted from the income tax. Beginning with the 34th percentile, the current system of taxing 2%-6% could be expanded. 1% tax rate on 34th percentile; 2% on 50th percentile; 3% on 60th percentile; 4% on 80th percentile; 5% on 90th percentile; 6% on 95th percentile and 7% on the top 1%.

The combination of a net-worth tax and an income tax would remove the tax burden from the poor (the bottom third) and ease the burden on middle-income households (the middle-third) and place the burden in its proper place--with those best able to support the common good.

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