(The Center Square) – A bill that would lower Kentucky’s personal income tax rate to 3.5% starting next year sailed through the state Senate.
House Bill 1 passed by a 34-3 vote and will now head to Gov. Andy Beshear’s desk. While Beshear has not always agreed with the Republican-led General Assembly’s plan to gradually reduce the income tax with the goal of eliminating it, the Democrat has expressed support for this year’s legislation.
GOP lawmakers were able to pursue a half-percent reduction in the income tax thanks to a law they passed three years ago over Beshear’s veto. That law permits the legislature to pass rate cuts as long as two requirements are met: Kentucky’s budget reserves equal at least 10% of the annual General Fund revenues, and the General Fund revenues exceed the amount of the state budget allocations and 1% reduction in the income tax rate.
“Kentucky’s economy is stronger than ever, thanks to a solid, conservative fiscal approach—the same strategy that recently earned the state credit rating upgrades from Moody’s, Standard & Poor’s, and Fitch,” said Senate President Robert Stivers, R-Manchester. “Stronger bond ratings, growing reserves, and ongoing income tax reductions are all direct results of strategic policymaking and the conservative principles championed by Kentucky’s supermajority.”
This year’s bill marks the third time the General Assembly has been able to seek a tax cut. According to Republican leadership, the first two allowed Kentucky taxpayers to retain about $1.8 billion through December 2024. The latest round is expected to save taxpayers another $718 million starting next year.
Four of the seven Democrats in the Senate supported the bill. Minority Floor Leader Gerald Neal along with Sens. Cassie Chambers Armstrong and Karen Berg, all of Louisville, voted against the measure.
Armstrong cited economic concerns as one of her reasons for voting no.
“We don’t know what tariffs, if any, might be coming,” she said. “We don’t know what federal funds, if any, might be going away. We don’t know what impact, if any, that’s going to have on us here in this state.”
Critics of the Republican strategy, including the Kentucky Center for Economic Policy, argue that continuing to reduce the income tax will hurt public education and other essential programs. The center, which calls for solutions that remedy inequities based on race, income, gender and geography, fears Kentucky is following the same path as Kansas did more than a decade ago. Leaders in that state were forced to repeal the cuts five years later due to funding shortfalls.
Senate Appropriations and Revenue Committee Chair Chris McDaniel, R-Ryland Heights, said Kentucky leaders have learned from mistakes made in Kansas and West Virginia, which is why lawmakers included the stipulations tied to budget reserves and revenues.
“This system was designed to guarantee responsible, measured progress, and it has worked exactly as intended,” he said. “Time and time again, naysayers have predicted financial disaster, but the facts tell a different story—income taxes are lower, essential services remain funded, and our rainy day fund is at its strongest level ever.”
Tuesday started the second part of the legislature’s 30-day session. Lawmakers are scheduled to meet in Frankfort four days a week through March 14 and then return to close the session on March 27 and 28.
