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Tax Rate Leads to Exit from Kentucky

September 25, 2018

The Cato Institute recently published a study by Chris Edwards on tax reform and interstate migration. Interestingly, the two factors seem to be linked, with people preferring to live in states with lower tax rates, to the point where they “vote with their feet” by moving to a different state. The general conclusion is that high-tax states have higher level of out-migration than do lower-tax states.

 

The report splits the states into one of two categories, either high-tax or low-tax, as well as measuring the net migration in or out of the state. The findings indicate bad news for Kentucky, at least in part. The study shows that Kentucky has lost out because of its tax rate. Edwards states, “Kentucky has suffered net out-migration in each of the past five years, whereas Tennessee has enjoyed net in-migration every year, including from its neighbor. Kentucky is a relatively high-tax state, whereas Tennessee is one of the lowest-tax states and has no personal income tax.” The loss of population indicates that Kentucky's system is outdated and in need of overhaul.

 

There is some good news. The legislature has already taken steps to change this trend by passing tax reform in 2018. Some of the critical issues in the tax code have been addressed already. The restructured system increases our competitiveness and will hopefully lead to a reversal of these numbers in the years to come. While we have made substantial progress this year, there remains much more work to make Kentucky a leader in the region.

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