Kentucky's Seven Border States
Tax And Revenue Implications
Tennessee: Your difference is showing
If you check out Western Kentucky University's new Center for Applied Economics online, here's some things you will find out about the commonwealth and its economic vitality:
- Kentucky's economy relies more heavily on manufacturing than all of the surrounding states other than Indiana. The commonwealth is 59 percent more dependent on manufacturing than the national economy.
- Notice how Kentucky's growth lags behind neighboring states:
- Persistent small differences in growth rates become a big deal over time. For instance, while Tennessee only grew at a 1.4 percent rate higher than Kentucky per year between 1997 and 2008, it added up to a 16 percent gap -- or a per capita income difference of $29,000 (Ky.) and $33,000 (Tenn.) during that decade.
- Kentucky and Tennessee share 350 miles of border and are similiar in terms of size, geographical features and historical/cultural similarities. Yet Kentucky lags behind:
- Ky's "aggregate personal income" has dropped from 86 percent of Tennessee's to 64 percent over the last 45 years.
- Ky's per capita income has dropped from 98 percent of Tennessee's to 92 percent.
- Ky's population has dropped from 82 percent to 70 percent of Tennessee's.
- Between 2000 and 2005, more than three times as many people moved to Tennessee as moved to Ky. Could it be that lower tax rates, a reliance upon the sales tax rather than punitive income taxes, School Choice and a Right To Work law really do have consequences?
According to WKU economists Steve Lile and Brian Goff, "the public sector accounts for a larger share of the KY economy than is the case of most neighboring states."
In a paper on the new WKU Center for Applied Economics Web site, Lile and Goff offer the results of their research comparing the share of government activity that consumes states' gross state product (GSP), which like the national GDP, is a leading indicator of states' economic vitality.
Of the seven surrounding states, only Virginia and West Virginia -- both of which house large federal government agencies -- exceed Kentucky in the percent of their GSPs accounted for by government.
That's one of the reasons why it's so hard to believe the claims being made by Gov. Beshear and his get-along, go-along big spenders in the Kentucky General Assembly when they say that there's no need for spending cuts immediately to deal with the ongoing Medicaid mess.
In one sense, they're right. They should have been cutting the size of government a long time ago.
Tennessee has a 5.5% sales tax which taxes all goods sold in the state-including groceries. Since Kentucky's sales tax exempts groceries, many Tennesseans will commute to Kentucky to buy their groceries, providing obvious stimulus to Kentucky's economy.