Besides basketball, Kentucky usually doesn't fare well in rankings, particularly when it comes to the economy. One area where Kentucky does outperform many U.S. states, however, is its Tax Freedom Day — this year, on April 11.
Tax Freedom Day, identified each year by the Tax Foundation, is the day when Kentuckians will have collectively earned enough income to pay all of their federal, state and local taxes.
Because states have different tax codes, each state has its own Tax Freedom Day and this year, Kentucky is the sixth state in the nation to reach this mark.
But while this high ranking looks good for Kentucky, digging a little deeper reveals that it actually indicates poor economic health. According to Tax Foundation analysis, Tax Freedom Days are later in states with higher incomes and higher tax rates.
The tax obligation of the state's citizens, collectively, is greater when more people are working and when more are bumped into higher tax brackets. Kentucky's tax rates are pretty much on par with other states, indicating that a weak economy is at the root of its early Tax Freedom Day.
A strong correlation exists between a state's Tax Freedom Day and its per capita gross domestic product, which is the total value of goods produced per person in a state, and a way of measuring income. States with low per capita GDP tend to have an earlier Tax Freedom Day because the tax system is progressive — meaning, the more someone earns, the more taxes he or she pays.
The data show that three of the six earliest Tax Freedom Day states have low per capita GDPs: Mississippi ($32,421, 50th); Alabama ($37,389, 46th); and Kentucky ($38,830, 43rd). These low per capita GDP states also have higher poverty rates.
To reverse this trend and boost per capita GDP in Kentucky, we need to increase economic freedom to unleash entrepreneurship, economic growth and opportunity for Kentuckians.
We could start by amending Kentucky's laws that make it difficult for entrepreneurs to start businesses and then employ people.
For example, breweries are banned from distributing their own beer and, instead, are forced to participate in an archaic three-tiered system. The government-created middleman throws up an enormous roadblock to growth of the craft-beer industry and that means less revenue for the state and less jobs.
Likewise, rolling back licensing requirements for many occupations will increase employment by breaking down barriers to getting to work.
The Institute of Justice finds that the high costs of licensing requirements — in terms of time and money — prevent people from entering many occupations. Kentucky requires licenses for 27 of 102 low-income occupations. When states prevent people from working, they're limiting their sources for tax revenue.
What we need to do is strike the right balance — greater economic growth and lower tax rates. This will allow Kentucky to maintain an early Tax Freedom Day, while improving economic well-being of Kentuckians.
The bottom line is, when people prosper, so does the state. Broadening the tax base while keeping taxes low is the best formula to put us on this path, and we can achieve this with a healthy dose of economic freedom that supports a growing economy in which all can participate and prosper.