Kentucky Republicans Move to Cut Income Taxes Again, Send Bill to Governor

The Kentucky State Capitol in Frankfort, Ky., on Oct. 1, 2022. Stefani Reynolds/AFP via Getty Images

Republicans in the Kentucky General Assembly have sent a bill lowering income taxes to Gov. Andy Beshear to either sign or veto.

The bill passed its final hurdle in the state Senate on Wednesday with a 30–5 vote. The legislation was a top priority for Republicans as they made it the first bill filed this session in the House. It passed the House last month.

The bill would lower income taxes to 4 percent beginning Jan. 1, 2024, down from the 4.5 percent tax enacted for 2023.

A similar bill was vetoed by Beshear last year to lower the tax rate from 5 to 4.5 percent and allow room to phase out the income tax with small reductions each year. The Legislature overrode him at the time and the law went into effect.

To make up for losses in revenue, the state proposed expanding taxes to new services like ridesharing or marketing services or to tax electric vehicle owners. Estimates at the time were that it would save taxpayers and cut the revenue to the state by more than $1 billion in the 2023–2024 budget cycle.

Party Line Vote

Amid a gubernatorial election year, both parties made their positions clear on the bill and its implications. Beshear has reportedly said he is keeping an “open mind” about the bill.

Republicans in the chamber said the measure was needed to return money to working Kentuckians and to make the state more appealing to businesses and families, as nearby states such as Tennessee have no personal income tax at all.

“They think it’s the government’s money first,” said Republican Senate Majority Floor Leader Damon Thayer. “We know it’s the people’s money first, and with this tax cut, another $650 million a year will stay in the checkbooks and the savings accounts of the people of the Commonwealth of Kentucky.”

He added that the rhetoric from Democrats is “the same old worn out tripe we’ve been hearing since the Reagan tax cuts in the 1980s.”

“It’s like the boy who cried wolf. Nobody’s listening to you anymore,” he added.

He went on to say he “dared” Beshear to veto the bill.

Democrats argued the measure would only help wealthiest people and provide very little relief for the majority of Kentucky residents.

Kentucky Gov. Andy Beshear speaks to reporters at the Kentucky State Capitol in Frankfort, Ky., on April 7, 2021. Timothy D. Easley/AP Photo

“I keep hearing ’tax cut, tax cut.' When I first came into the session we talked about the tax cut,” said Democrat Minority Whip David Yates. “I think since then, my constituents, the working families, realize it hasn’t been a tax cut. It’s a tax restructuring. It’s changing the tax from income to other services.”

He said constituents are asking why there is less money in their pockets with services being taxed instead of their income.

“For a majority of Kentuckians, it’s less money in their pockets,” he said. “Now, for the wealthiest, they make out like bandits. It’s a very inequitable tax.”

Tax Debate

The income tax cuts are part of Republican efforts to remain competitive with surrounding states, as well as switching to a tax system more reliant on taxing consumption instead of production.

Beshear objected to the new taxes on products and services that would be placed on Kentuckians to make up for the loss in revenue from income taxes when he vetoed the bill last year.

“It imposes new taxes that weaken public safety, harm vital industries, undermine economic development incentives, and threaten Kentucky’s future economic security,” Beshear said in his veto message (pdf).

To offset the reductions, sales tax was added to different products not previously taxed, but did not apply to groceries and pharmaceuticals.

Beshear said “I’ll have to look at how many dollars it will put in the pockets of how many Kentuckians ... and how it could help their lives. I’m certainly keeping an open mind about it and we’ll see once it hits my desk,” according to Spectrum News 1.