FRANKFORT — Republicans in the GOP-dominated Kentucky House of Representatives easily advanced a bill over concerns voiced by some Democrats Thursday to further reduce the state’s individual income tax rate as part of their goal of eventually eliminating the income tax entirely.
House Bill 1 was approved 90-7 as 13 of the 20 House Democrats joined the Republican supermajority in quickly moving the bill on the third day of this legislative session.
The Senate Appropriations and Revenue Committee will hear the tax cut bill Friday, said Senate Majority Leader Max Wise, R-Campbellsville. The full Senate is expected to quickly pass the measure after lawmakers return Feb. 4 for part two of the 30-day session.
Sponsored by House Appropriations and Revenue Committee chair Jason Petrie, R-Elkton, HB 1 is the top GOP priority. It would reduce the individual income tax rate from 4% to 3.5% effective Jan. 1, 2026. The change will reduce state revenues by an estimated $718 million annually, according to a fiscal note. The Republican-controlled legislature in 2022 reduced the rate by a half percentage point from 5% and by the same amount again in 2023.
Democrats who supported the legislation welcomed tax relief for their constituents suffering from inflation, but advocated for what they said would be more equitable alternatives targeting relief to those who need it most. Democratic opponents said the income tax cuts have gone far enough in light of the state’s education and other needs. Republicans argued that GOP tax cuts and other conservative policies are fueling the state’s economic growth and making Kentucky more competitive with other states.
Petrie on the House floor said the process that lawmakers started years ago to cut the income tax by a half-percent each year — depending on if specific financial thresholds had been met in the state government’s budget — was a “methodical, thoughtful, cautious approach to reducing the individual income tax rate to zero over time.”
“But not so fast that we hurt ourselves, more importantly, our constituents for essential services to be rendered to them,” Petrie said.
Republicans leaders are confident about continuing to cut the state’s income tax rate, one of the largest sources of state revenue, despite a changing economic picture facing the state as the inflow of COVID-era monies has receded.
Democratic Gov. Andy Beshear’s budget office has projected a decline in General Fund revenue in this fiscal year compared to the previous year, the first drop in revenue in modern times not created by an economic downturn. GOP leaders have argued actual revenues are up through the initial months of this fiscal year and the state Budget Reserve Trust Fund, also known as the “rainy day” fund, is healthy.
While the bill received some support from the minority of Democrats, a number of those Democrats expressed concern over the future implications for government services if economic conditions worsened in the state.
“If there is one thing that we all Democrats, Republicans and independents can agree with, it’s that no one wants to pay more taxes than they have to,” said Rep. Anne Donworth, D-Lexington, who voted for the bill. Donworth said she was concerned by the effects on lower-income Kentuckians as the state potentially must rely more on sales taxes on goods and services to make up for the lost income tax revenue.
Democrats had also filed several floor amendments aimed at making sure families, lower-income Kentuckians, state employees and public school teachers would particularly benefit from income tax relief.
Those floor amendments, ranging from providing a child tax credit for families to exempting income tax for public school teachers, were either ruled out of order by House Speaker David Osborne as not being germane to the bill or were not called up by their sponsors.
One Democratic floor amendment that would have created a graduated income tax rate, taxing Kentuckians who have higher incomes at a higher rate than the rate for lower-income Kentuckians, was voted down. Rep. Adrielle Camuel, D-Lexington, argued such a graduated tax rate would give a “greater tax cut and greater financial relief to the people who need it most.”
Petrie said such a graduated tax rate would be “counterproductive” to Republicans’ goal of reducing revenue streams and lowering taxes, and that such a graduated tax rate was “designed to increase revenues and increase taxes on certain people.”
Camuel ultimately voted to reduce the income tax rate, saying she didn’t support a “march to a zero percent income tax rate” but that her constituents needed “any break they can get at this point given the number of consumption taxes that have been pushed down on them.”
House Majority Whip Jason Nemes, R-Middletown, touted the income tax cut as a “great day,” pointing to the cumulative income tax relief that Republicans have sent to constituents since the GOP-dominated legislature started reducing the income tax rate in 2018 when the top rate was reduced from 6% to 5%. To partially offset the cut, the legislature in 2018 also expanded the sales tax to many services.
“Kentucky is a poor state. We are not going to tax our way to prosperity. We all want to support the Medicaid programs and the schools and fund all the things that we all care about. But you can’t do it by overtaxing folks. We do it by growth. This is a conservative approach,” Nemes said.
Democratic Gov. Andy Beshear has previously signaled he wouldn’t stand in the way of another income tax rate cut.
McKenna Horsley contributed to this report.
This article is republished under a Creative Commons license from Kentucky Lantern, which is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Kentucky Lantern maintains editorial independence. Contact Editor Jamie Lucke for questions: info@kentuckylantern.com. Follow Kentucky Lantern on Facebook and Twitter.
Liam Niemeyer covers government and policy in Kentucky and its impacts throughout the Commonwealth for the Kentucky Lantern. He most recently spent four years reporting award-winning stories for WKMS Public Radio in Murray.
