Economic freedom, the best way to make Kentucky competitive

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Andrew McNeill

The COVID-19 pandemic has taken its toll on all political considerations in Frankfurt. Unable to predict, this disruption will stay with us for the foreseeable future.

A short-term horizon will shape the actions of the General Assembly in the 2021 session. However, Kentucky cannot keep that mindset for long. We simply have too much ground to catch up.

In my 17 years of observing the politics and politics of Frankfort, I have heard variations of the mantra “Kentucky Goes On” thousands of times. What looks like a statement of progress is actually misleading.

Think of the Kentucky Derby as an analogy. Each horse “progresses” around the track. Law? But, depending on their speed and endurance, there are clearly winners and losers at the end of the race. Likewise, Kentucky’s performance must be measured against other states – our competitors in the field.

Here’s a fact that may surprise more than one: 40 years ago Kentucky was essentially as wealthy as North Carolina and Tennessee. Their growth, however, has far exceeded that of Kentucky. Anyone who visits Nashville or Charlotte can clearly see the difference in the economic trajectories of these states compared to ours.

Digging through more recent data for a report released by the Bluegrass Institute, I found that Kentucky was way behind the rest of the United States. In 1999, Kentucky’s per capita income was 86 percent of the national average. Last year, that figure fell to 73%. Kentucky’s economy has grown over the past 20 years, but not fast enough to keep pace.

The question of why Kentucky has not been able to keep pace with its competition is complex. Yet there is a critical difference between Kentucky and Tennessee. Our neighbor to the south adheres more strongly to the principles of limited government and economic freedom, while Kentucky clings to its long history of centralized and progressive redistribution.

The evidence for this distinction is clear.

According to data compiled by Pew Charitable Trusts, the average Kentucky state government spending over a 20-year period was 10.5% of personal income, compared to 7% in the voluntary state. Figures from the Kaiser Family Foundation show that Kentucky not only spends at a higher per capita rate than Tennessee, but also more than New Jersey, California and Illinois.

We rank 21st nationally for total tax burden. Only five states – New York, Oregon, Maryland, Minnesota, and California – have higher tax burdens than Kentucky. A consistent conclusion in my report was that our high tax burden, unlimited government spending, and huge debt put us into categories typically associated with the tax wrecks of liberal “blue states”.

Yet a popular narrative exists that Kentucky’s income stream is insufficient to support a sufficient level of government services and programs. Organizations that argue that there isn’t enough revenue in Frankfurt really mean there isn’t enough to match their redistribution agenda.

The economic weakness brought on by the state’s shutdown last spring and the continued intrusion into normal life due to legitimate public health concerns translates into a tight fiscal outlook in the next 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 adopt redistribution to satisfy their political supporters. The gasoline tax is Exhibit 1. Both sides of the aisle in the General Assembly appear favorable to transferring money from the pockets of working families to fund more government spending favored by local elected officials and large corporations. companies. It’s really more of the same tax and spending culture that has held Kentucky back for generations.

Rejecting redistribution will require challenging a status quo that powerful constituencies are vigorously defending. Kentucky needs to break with its past belief that an activist government will bring shared prosperity. States that embrace economic freedom are those that have served their citizens.

Andrew McNeill is Visiting Policy Fellow at the Bluegrass Institute for Public Policy Solutions.


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