For Kentucky as a whole to truly flourish, we need our rural communities to thrive as much as the cities and suburbs where most residents now live. Even today, Kentucky remains among the most rural states in the country when it comes to population.
But recent decades have been hard on rural Kentucky. Jobs and income from traditional industries like coal, tobacco and branch plant manufacturing have dwindled in the face of technological change, corporate consolidation, measures to protect public health and bad trade deals.
Now another major economic blow may be coming as the General Assembly attempts to reduce and even eliminate Kentucky’s income tax, the source of 41% of state revenues. Doing so will seriously endanger the state budget and threaten rural Kentucky because of the important role state tax dollars play in financing local employment.
In many rural counties the school system is now the largest employer, and rural schools in Kentucky are funded primarily with state dollars. In Wolfe County, for example, the state provides 88% of the school funding that comes from state and local sources. In the wealthy Anchorage Independent School District outside of Louisville, the state’s share is just 31%.
That’s not because rural school tax rates are lower — they tax their residents just as much as wealthy districts do. It’s because of an equity formula that rightly distributes state dollars based on how much local wealth exists. That formula is weakened when state taxes are cut.
Public schools are the single largest expenditure in the state budget, and Medicaid comes in second. Along with saving lives and promoting health for 1.5 million Kentuckians, Medicaid creates jobs in hospitals and health clinics. And while Medicaid covers only 21% of residents of Spencer County near Louisville, it covers 79% of Owsley County residents. For every dollar the state eventually cuts from Medicaid due to lower tax revenues, our communities will lose about four dollars of federal matching money.
State-funded employment in rural counties is more than a sideshow — it’s the main attraction. Census data shows that 44% of the jobs in Perry County, for example, are in education, health care, social assistance or government. And that doesn’t count the number of jobs in private businesses like restaurants and grocery stores that exist due to the consumer spending of those who hold publicly-funded jobs.
Eventual budget cuts resulting from slashing the income tax will hammer rural communities, and they will benefit little from the tax cuts themselves due to typically lower incomes. Median household income in suburban Oldham County is $99,000 and 17% of residents make more than $200,000 annually. In contrast, the median is $24,000 in Wolfe County, and only 0.2% of residents make more than $200,000 a year.
At the same time, depressed rural incomes mean they’ll be hit harder when the state further increases the regressive sales tax to fill the resulting budget hole and applies it to purchases like groceries, as states like Tennessee do.
More frequent natural disasters are worsening the economic turmoil facing rural Kentucky.
The state has not chipped in nearly enough money to rebuild from the eastern Kentucky floods and western Kentucky tornadoes. And many rural communities suffer from longstanding unmet needs, like the lack of clean drinking water in Martin County. The state’s capacity to fund these needs and address future disasters depends on a protected revenue stream.
It’s far from only rural communities that rely on public dollars, and it’s important to ignore vicious and inaccurate stereotypes that say otherwise. What would Lexington be, for example, without the state-funded University of Kentucky and the city’s large hospitals financed by Medicaid and Medicare?
The income tax makes possible the schools, health, infrastructure and quality of life improvements that are an economic foundation in every community. All Kentuckians — city and country, white, Black and brown — benefit from things we do together that we cannot do alone.
The only real winners from a lower income tax are the wealthy and powerful few, who will pocket huge tax cuts.
Rural Kentucky communities have long helped feed, power and supply the world’s most powerful economy. When they hit hard times, we haven’t done enough to help. Now, the proposed elimination of the income tax threatens what remains — and with it their chances for a better tomorrow.