Economic freedom, limited government the best path to make Kentucky competitive
The COVID-19 pandemic has wreaked havoc on every policy consideration in Frankfort. Impossible to predict, this disruption will remain with us for the foreseeable future.
A short-term horizon will shape the General Assembly’s actions in the 2021 session. However, Kentucky cannot keep this mindset for long. We simply have too much ground to make up.
In my 17 years observing Frankfort’s politics and policy, I’ve heard some variation of the mantra “Kentucky is moving forward” thousands of times. What sounds like a statement of progress is actually misleading.
Consider the Kentucky Derby as an analogy. Every horse “makes progress” around the track. Right? But, depending on their speed and stamina, there are clear winners and losers by the end of the race. Similarly, Kentucky’s performance must be measured relative to other states - our competitors in the field.
Here’s a fact likely to surprise many: 40 years ago, Kentucky was essentially as wealthy as North Carolina and Tennessee. Their growth, however, has far outpaced Kentucky’s. Anyone visiting Nashville or Charlotte can plainly see the difference in the economic trajectories of those states compared to ours.
Digging into more recent data for a report published by the Bluegrass Institute, I found Kentucky has fallen behind in a big way from the rest of the US. In 1999, Kentucky’s per capita income was equal to 86 percent of the national average. Last year, that dropped to 73 percent. Kentucky’s economy has grown over the past 20 years but not fast enough to keep up.
The question of why Kentucky couldn’t keep pace with its competitors is complex. Still, there’s a critical difference between Kentucky and Tennessee. Our neighbor to the south adheres more closely to principles of limited government and economic freedom, whereas Kentucky clings to its long history of centralized, progressive redistribution.
The evidence of this distinction is clear.
According to data compiled from Pew Charitable Trusts, average state government spending in Kentucky over a 20-year period was 10.5 percent of personal income compared to 7 percent in the Volunteer State. Figures from the Kaiser Family Foundation show Kentucky not only spends at a higher rate per capita than Tennessee but also more than New Jersey, California and Illinois.
We rank 21st nationally in total tax burden. Only five states – New York, Oregon, Maryland, Minnesota and California – have heavier income-tax burdens than Kentucky. A consistent finding in my report was our high tax burden, unbounded government spending and enormous debt places us in categories typically associated with the fiscal train wrecks of liberal “blue states.”
Still, a popular narrative exists that Kentucky’s revenue stream is inadequate to support a sufficient level of services and government programming. Organizations that argue there isn’t enough revenue coming into Frankfort really mean there isn’t enough to match their redistribution agenda.
Economic weakness brought on by the shutdown of the state last spring and the continuing intrusion on normal life due to legitimate public health concerns translates to a tight budget outlook during the upcoming session. Whether lawmakers decide to live within their means and prioritize spending or raise taxes, as they did in 2018, will be revealing.
Conservative majorities often embrace redistribution to satisfy their political supporters. The gas tax is Exhibit 1. Both sides of the aisle in the General Assembly appear favorable towards transferring money from working families’ pockets to fund more government spending favored by local elected officials and big business. It’s really more of the same tax-and-spend culture that’s held Kentucky back for generations.
Rejecting redistribution will require challenging a status quo that powerful constituencies forcefully defend. Kentucky needs a break from its past belief that activist government will deliver shared prosperity. States embracing economic freedom are the ones that have delivered for their citizens.
Andrew McNeill is a Visiting Policy Fellow with the Bluegrass Institute for Public Policy Solutions.