It's a statement of fact that Tennessee is doing better economically than Kentucky, and has been doing so for years. We here in Big Blue Nation may not want to admit that our neighbors to the south are better than us in anything besides college football, but the facts speak for themselves.
Why is this the case? What advantages could the Volunteer State possibly have over the Bluegrass?
Kentucky and Tennessee were both admitted to the Union around the same time, the first two states west of the Appalachians. They are similar in size and terrain. They have similar resources, although Kentucky has more coal, oil, and natural gas reserves. They both have a network of freeways that criss-cross the state. Tennessee does have the Tennessee Valley Authority dams and lakes, which provide both cheap hydroelectricity and a navigable waterway all the way from Knoxville to the Tennessee River's mouth at Paducah. (In contrast, Kentucky and the U.S. Army Corps of Engineers allowed the locks on the Kentucky River to deteriorate to the point where the river is no longer navigable past Frankfort.) Both are well-served by railroads (remember the venerable Louisville & Nashville, which could as easily have been named Lexington & Knoxville?) Both have major airline freight hubs -- Kentucky has two, since the Cincinnati airport is actually on Bluegrass soil.
Tennessee has Jack Daniels. Kentucky has Maker's Mark and Jim Beam and Woodford Reserve and a number of other high-end whiskeys. Tennessee has Memphis, Nashville, and Knoxville. Kentucky has Louisville, Lexington, and a large section of greater metropolitan Cincinnati on this side of the river spread out amongst several municipal governments.
Kentucky lies farther north, and thus closer to the nation's traditional industrial capitals. Tennessee is to the south, nearer to the Sun Belt. The climate is similar, although we typically have worse snowy winters and they have more miserably hot and humid summers.
We have a better basketball team, but they have a better football team. We have Rupp Arena, they have Neyland Stadium.
Look at the states side-by-side, and it would stand to reason that they should be as similar economically as they are on paper. But that's not the case. Tennessee has grown in population and business opportunities, while Kentucky has declined. One state official said last week that at the end of World War II, Kentucky had a similar population to both Tennessee and Indiana. Yet both of those states have grown dramatically, while Kentucky's population has shrunk.
One argument in Tennessee's favor for its growth has been its status as a right-to-work state. Tennessee passed legislation in 1947 forbidding the requiring of union membership as a condition of employment. Unions are free to organize in workplaces, but employees can't be made to join if they don't want to. This is often derisively called "right to work for less" since some claim that wages are lower in right-to-work states, but the counterargument is that it's better to create 100 jobs paying $30,000 a year than it is to create zero jobs paying $50,000 annually.
Kentucky passed right-to-work in 2016, and the legislation has been credited for Braidy Industries' decision to built an aluminum mill in the Ashland area that would have otherwise gone to another state, so there really hasn't been time yet to see how much of an equalizing effect it will have on job creation with Tennessee.
So again, why? What's the reason Tennessee's flourishing? Many point to the state's differing tax codes.
It's well-known that Tennessee doesn't have an income tax. Eight other states also don't have income taxes, among them Arizona, Florida, and Texas, which make those locations desirable for retirees. Tennessee also doesn't have a state property tax. This includes on vehicles, which causes Kentucky to occasionally roll out a "Freddie Freeroader" program to find Kentuckians who illegally register their cars in Tennessee. But Tennessee makes up for its lack of an income tax through sales taxes. The statewide rate is 7 percent, but unlike Kentucky, Tennessee charges a 5.5 percent sales tax on food. Kentucky repealed its sales tax on food in 1972, one of the few good things Wendell Ford ever did.
But Tennessee also allows local governments to levy a sales tax. Go to the Smokies and buy something from one of the shops in Gatlinburg or Pigeon Forge, and you'll pay close to 10 percent in sales taxes. I've always been baffled as to why people would use gas and drive four hours from home to buy the same stuff and pay more for it.
I've long said that the perfect place to live would be Harrogate, Tenn., just on the south side of the Cumberland Gap Tunnel. The scenery is beautiful, you wouldn't have to pay any income taxes, and you could drive five miles across the state line to Middlesboro to do all your shopping at a reduced tax rate.
Is Tennessee's tax code why it's doing so much better than Kentucky? Many believe so, including our own governor. He's been saying more frequently that Kentucky needs to abandon its income tax and increase its sales tax to become more competitive, and allow incomes and job opportunities to rise.
Personally, I've never been a fan of sales taxes. Those who advocate the elimination of income taxes and relying on consumption taxes are fond of calling it the "fair tax." The more you buy, the more you pay. Me, I prefer a flat earned income tax. Exempt a certain amount from taxation, and then tax every dollar of earned income above that level at a flat rate. A figure I've often floated is to exempt the first $30,000 for an individual or $60,000 for a married couple, with a $5,000 exemption per dependent, then tax anything over that level at a flat 15 percent. This allows everyone to earn a basic income tax-free to handle necessities, then taxes everything above that fairly.
When Kentucky's Republican legislature expanded the sales tax to certain services such as veterinary care and auto repair, Gov. Matt Bevin vetoed it. The General Assembly overrode his veto, however. Bevin wanted comprehensive tax reform, not just the services tax increase and income tax decrease the legislature voted in.
Based on what he's been saying lately, I part company with Gov. Bevin on this one. I don't support an elimination of the income tax, and I certainly don't support increasing the state sales tax from 6 percent to 8 percent, or enacting the mechanism to allow local governments to impose sales taxes. In other words, I don't want Tennessee's sales tax setup. An overall increase in Kentucky's sales tax might be more palatable if it continues to exempt food, but none of the proposals that have been mentioned have leaned one way or the other on taxing food.
Unsurprisingly, those who are most loudly protesting a proposed sales tax increase now were all in favor it it back in 1991 when Kentucky raised its rate from 5 percent to 6 percent as part of the Kentucky Education Reform Act. Some of us opposed that tax increase then and oppose this one that's being floated.
We want to beat Tennessee. On the basketball court, on the football field, and in the competition for economic success. But is making our tax code more like theirs the way to do it? At this stage, it doesn't appear so. Surely there are other ways of creating jobs and raising salaries than by increasing consumer prices.
