SUNDAY EDITION | Taxed to the max? Some say Louisville residents - WDRB 41 Louisville News

SUNDAY EDITION | Taxed to the max? Some say Louisville residents pay too much

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LOUISVILLE, Ky. (WDRB) -- The new 2 percent "fee" most Metro residents will pay on natural gas. The annual hike in property tax rates for Jefferson County Public Schools. Mayor Greg Fischer's proposed local-option sales tax.

Some Metro Council Republicans worry a series of little tax increases is quietly adding up -- and keeping Louisville's economy from growing.

"If you look at things in totality, we are definitely taxed out the wazoo. …It's becoming a heavier and heavier burden, and it's put us at more and more of a disadvantage in terms of attracting people to come in here," said Ken Fleming, who represents parts of St. Matthews and Lyndon.

Fleming is among a handful of Metro Council members trying to call attention to the overall level of taxes in Louisville.

That debate has become more salient as Fischer continues his two-year push for a local sales tax to fund public projects.  Louisville hasn't contemplated any new broad-based taxes since voters handily rejected former Mayor Jerry Abramson's plan to hike county-level income taxes to pay for libraries in 2007.

Fleming said Louisville leaders should be wary of adding to a tax burden that already looks high compared with other cities in nearly every study that attempts to compare local tax climates.

Last year, a University of Louisville report funded by Fleming's office found that a family living in the boundaries of the old city of Louisville pays the third-highest level of state and local taxes of 15 similarly sized cities – behind only Columbus and Dayton, Ohio.

But even though Louisville ranks in the top 3, its total tax burden for that family -- $11,481 – is only about 9 percent higher than the 8th-ranked city, Indianapolis ($10,531).


The study shows that Louisville residents are taxed "right at about the mid-point of our peer cities," said the report's author, Janet Kelly, an urban and public affairs professor and director of U of L's Urban Studies Institute.

The study was based on a hypothetical family living in a $186,000 home in each city's urban core, with four children and two earners bringing in $100,000 annually.

Meanwhile, since 1997, Louisville has ranked near the top of another study -- by the local government of the District of Columbia -- that compares state and local taxes in the largest city in each state for families in various income brackets.

The 2012 version of the study ranked Louisville as the 7th-most taxed community among 51 cities for a family of three earning $75,000 a year – higher than Chicago, New York and Los Angeles.

Fischer spokesman Chris Poynter said the D.C. study is often incorrectly interpreted as showing Louisville in the top-ten taxed cities in the nation. The study only compares the biggest city in each state – not all cities of a certain size nationwide, he noted.

But Fleming said quibbling about the shortcomings of any particular report misses the larger point.

"Look at all the studies out there; on a trend basis, Louisville always ranks up there as the most taxed community," he said.

Louisville residents pay high income taxes

To the extent Louisville looks highly taxed, it's not because of the "modest" property taxes or the low state sales tax, Kelly said. It's because Louisville residents pay very high income taxes, to both the state and local governments.

In Kelly's study, the hypothetical Louisville family pays $7,724 in state and local income taxes – the highest of all 15 cities and 21 percent higher than the next-highest city, Birmingham, Ala.

The "crux" of Louisville's tax burden is the combination of the Kentucky income tax – about 6 percent for most earners – and local "occupational license fees," Kelly said.

The license fees, which fund Metro government, TARC and Jefferson County Public Schools, add up to 2.2 percent of pay for those who live and work in Jefferson County. They can be even higher – up to a total of 3.7 percent -- for workers in Jeffersontown, St. Matthews, Shively and West Buechel, which charge their own license fees.

Kentucky cities have become heavily reliant on local occupation taxes – which employers usually deduct automatically from employees' paychecks -- because the state imposes "serious constraints" on how local governments can raise money, according to a 2012 University of Kentucky study.

Louisville property taxes have declined for decades

In fact, a little-noticed phenomenon is that property tax rates have been going down in Louisville – little by little – for decades because of one the local government "constraints" cited in the UK study.

Residents of Louisville's urban services district – the old city limits – now pay metro government about 35 percent less than they would under the property tax rate from 1978; meanwhile, suburban residents have seen a 42 percent cut over that same period, according to research by Jason Bailey of the Kentucky Center on Economic Policy.

In 1979, during an era of high inflation, Kentucky passed a law designed to curb the year-to-year growth in property taxes, but it actually has resulted in a long-term "erosion" of the tax base, Bailey said.

While city and county governments are free to pull rates back up, elected officials are typically reluctant to do so because of political pressure, Bailey said.

The Metro Council and its predecessors, the old Jefferson County Fiscal Court and Louisville Board of Aldermen, have not voted to raise property tax rates in decades, said Steve Rowland, chief financial officer for Louisville Metro government.

The Jefferson County Board of Education, on the other hand, has been raising rates since the early 2000s, though today's school district rate is still 19 percent lower than in the late 1970s, according to Bailey's calculations.

Some say income taxes hold Louisville back

With property taxes playing a less important role, leaders disagree on whether Louisville's reliance on local income taxes is a problem.

Fleming, who is not seeking re-election this fall, said Louisville could make itself more attractive to high-paid industries if it lowered or eliminated occupational rates. He suggested replacing the revenue through a local sales tax, should the state ever allow local governments to do so.

Currently, high income taxes scare away corporate executives and highly skilled workers who have plenty of choices as to where to live or locate their companies, he argues.

"When you are trying to attract major money earners to come here, they might not do that because of the tax burden. ...Those decision-makers are going to look at, 'What's going to impact my bottom line, personally?'" Fleming said.

Fleming's argument is somewhat supported by the 2012 UK study, which was completed for Gov. Steve Beshear's Blue Ribbon Commission on Tax Reform. It warned that any addition to Kentucky's state and local income taxes might put the commonwealth at "a serious competitive disadvantage."

Poynter, Fischer's spokesman, said Louisville's high income tax burden has more to do with the state income tax than local occupational rates.

"We have no control over state taxes. I think this is the reason we all agree: We have to have state tax reform," Poynter said.

Earlier this year, Beshear's commission recommended slight cuts in state income tax rates as part of dozens of proposed changes. The tax reform package failed to garner support in the Kentucky General Assembly.

Bailey said people look at a lot of other factors besides taxes – cost of housing, availability of jobs, public amenities – when choosing where to live or to start businesses.

If high taxes scare away talented people, no one would be moving to Boston or Silicon Valley, he said.

Instead of cutting occupational taxes, as Fleming proposes, "What we should be more focused on is how we change the quality of life," Bailey said.

That appears to be Fischer's approach. The mayor wants a local sales tax option to pay for "quality of place" investments that will make Louisville more attractive for young workers and in turn, grow the city's economy, Poynter said.

Those type of upgrades include the $581,000 Fischer has committed to convert Slugger Field in preparation for a pro soccer team, and even small changes like striping bike lanes between the Highlands, downtown and Old Louisville, he said.

Poynter added that comparing taxes in different cities is not useful without taking into account other differences that matter to residents' bottom lines, like Louisville's low cost of living, housing and electricity. (Louisville has relatively low wages, too).

"There really is no definitive study out there …that equitably looks at all of these factors," he said.

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