Governor Andy Beshear signed a bill into law Thursday that will reduce Kentucky’s individual income tax, expressing confidence that economic growth will offset the loss in revenue.
The measure, which will lower the tax rate from 4% to 3.5% starting next year, sailed through the Republican-led Legislature in the first five days of its session. Beshear followed through on his pledge to sign off on the cut, which is meant to offer relief to Kentuckians dealing with stubbornly high consumer prices.
Supporters say the lower rate will promote long-term economic growth and population gains in the Bluegrass State by enabling people to keep more of the money they earn.
Beshear noted Thursday that an analysis estimated that the half-percentage point cut would reduce the state’s general fund revenues by $718 million annually once it is fully implemented. The general fund pays for most state services, including education, health care and public safety.
Beshear sounded confident the state can absorb the revenue loss.
Beshear pointed to the influx of private-sector investment and jobs added in Kentucky in recent years. Republican lawmakers say those successes resulted from business-friendly policies they passed.
General fund tax receipts in December were up 4.5% from the same period a year ago, the state budget director’s office reported last month. Receipts increased 1.7% for the first six months of the fiscal year that ends June 30.
Since the passage of a tax overhaul in 2022, the individual income tax in Kentucky has gradually been reduced by increments of a half-percentage point, conditioned on meeting benchmarks to ensure revenues are sufficient to meet state spending needs.
As part of that overhaul, the state sales tax was extended to apply to more services. Critics say lower-income families were hurt the most by applying the sales tax to more services.
During state Senate debate on the income tax cut this week, several Republicans said the latest reduction was another step toward what they hope is the ultimate result, eliminating the individual income tax altogether.
Source: WDRB
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