Income tax cut, a GOP priority, sails out of Kentucky House

Democrats raise concerns about state’s future financial stability

By Liam Niemeyer (Kentucky Lantern)

FRANKFORT — A bill that would continue to cut the income tax in Kentucky, a top Republican priority, sailed out of the House on a party-line 79-19 vote Thursday afternoon.

The vote, which was followed by applause on the floor, took place on the third day of the session and about six hours after House Bill 1 easily passed out of committee.

Republicans praised the cut as a way to get money back in individuals’ pockets and strengthen the economy, while  Democrats warned that the change would disproportionately benefit the wealthiest Kentuckians while forcing cuts in education and other state services.

“I want to make sure that Kentuckians know who benefits from this lopsided revenue reduction bill? John Calipari. Jeff Brohm. Kelly Kraft,” said Rep. Josie Raymond, D-Louisville. “We should return to an affordable, graduated income tax, so we can adequately cover the costs of public education, Medicaid and public safety.” 

Republicans hailed the change. House Majority Floor Whip Rep. Jason Nemes, R-Louisville, declared  a “banner day” for Kentucky. 

“All taxpayers will benefit from this bill,” Nemes said. “Every single person who pays income tax will benefit.” 

Speaker Pro Tem Rep. David Meade, R-Stanford, also said lowering the income tax rate was the “best way” to “give people control over their money.” 

Democratic Gov. Andy Beshear said during a Thursday news conference he wanted to see the final form of HB1 on his desk before he made a judgment on the legislation. 

“I’ll have to look at how many dollars it’ll put in the pockets of how many Kentuckians at that time and how it could help their lives. So, I’m certainly keeping an open mind about it,” Beshear said. 

Beshear vetoed landmark tax legislation last year that began the process of tentative income tax cuts in the state, which was overridden by the GOP-dominated legislature. That piece of legislation also implemented new sales taxes starting this year on wide range of services. 

HB 1, co-sponsored by House Appropriations and Revenue Committee Chair Jason Petrie, R-Elkton, would lower the state income tax from 4.5% to 4% effective in 2024. 

The bill is a part of an ongoing, planned series of income tax cuts set in place by landmark tax legislation passed by the GOP-dominated legislature last year . It allows the legislature to lower the income tax each year as long as fiscal triggers are met by the state, such as having adequate monies in the state’s General Fund, and the bill also lowered the state’s income tax from 5% to 4.5%.

Taking the income tax to 4% is projected to cost state coffers $1.2 billion a year by 2025.

“We don’t need the money in state government. It’s better that they have it and let it churn in local economies under their choices, not ours. It’s just a healthier system that way,” Petrie told the committee.

Last year’s landmark tax legislation also implemented a slew of sales taxes of 6% on services ranging from recreational camps to parking services. 

The bill faced pushback from the small minority of Democrats on the committee, concerned over how the state government would make up for the loss of income tax revenue and perceptions that the income tax cut would benefit richer Kentuckians while the implementation of last year’s sales taxes would hurt lower-income Kentuckians. 

“This is a shift in the tax burden, is what this is. We’re moving to more of a consumptive base tax, and that’s really good for high earners,” said Rep. Al Gentry, D-Louisville. “It actually raises the burden on the lowest of earners.”

Rep. George Brown, D-Lexington, also raised concerns about the fiscal impact of HB1, noting that the fiscal note for the bill, produced by the Legislative Research Commission, stated the future fiscal impact on the budget was listed as “indeterminable” by the Legislative Research Commission. The state is expected to lose $315.8 million in tax revenue from the half-percent drop in income tax in 2023-2024, according to the LRC. 

Petrie pushed back on the criticism, saying the narrative that the legislature will eventually have to raise taxes in the future to make up for present-day tax cuts was “bad for the public.” He said the economic fundamentals of the state are much better than in the past, allowing for the income tax cuts to take place. 

“Everybody’s still saying, ‘we’re going to have to raise taxes. Everything’s going to hell in a handbasket,’” Petrie said. “We continue doing what we’re doing, and we’re still not raising taxes.” 

Pam Thomas, a senior fellow with the progressive research group Kentucky Center for Economic Policy, spoke before the committee against the income tax cut. The think tank is a part of a coalition of groups that have continued to advocate against the legislation, arguing the boost in current tax revenues is a temporary “mirage,” the result of massive federal spending during the pandemic and inflation, and that investments are needed in areas including public education and to help Kentuckians impacted by natural disasters on both ends of the state. 

“If you ask your constituents…I believe they’ll tell you they want good, strong public schools, access to affordable childcare, safe drinking water and roads that don’t have potholes. They’ll tell you, they want their fellow Kentuckians who’ve fallen on hard times and need help to receive help,” Thomas said. “I think there are significant risks in our state’s continued ability to do these things. And I think they’ll be severely compromised moving forward by the cuts in our income tax.”

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Photo:  Senate Majority Floor Leader Damon Thayer, R-Georgetown, (left) congratulates House Appropriations and Revenue Chair Jason Petrie, R-Elkton, after the passage of House Bill 1. (Photo by LRC Public Information)

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