On Thursday, Feb. 6, Governor Andy Beshear signed House Bill 1 (HB 1) into law. HB 1, the legislature’s top priority this session “lowers the individual income tax rate from 4% to 3.5% effective Jan. 1, 2026,” according to The Kentucky Lantern. Beshear cited high costs for families throughout the Commonwealth despite a “booming economy” as the reason for the tax cut.
According to the Lexington Herald-Leader, “The bill is part of a years-long effort begun in 2022 by Republican legislators to get the state’s income tax rate all the way down to 0%.” While this bill received support from Beshear, many Democrats were split on whether or not to support the bill.
While many citizens of the Commonwealth are celebrating the tax cut, others are concerned that continuing to cut the income tax rate will result in a lack of ability to fund necessary state programs. According to a report published by the Kentucky Center for Economic Policy “Historically, the individual income tax was the largest and most productive revenue source used to fund Kentucky’s schools, health care, infrastructure and human services. Its continued diminishment will severely hamper the state’s ability to fund critical investments needed to make us healthier, safer, educated and prosperous.” The .5% tax cut will result in a $718 million cut to Kentucky’s revenue.
In addition to concerns regarding state programs, the report also stated that if Kentucky continues this current trajectory, the Commonwealth will be headed for a recession.
While many citizens of the Commonwealth have celebrated the announcement of this tax cut, those who benefit from the tax cut are not the families in need that Beshear referenced when signing the bill into law. “Approximately two-thirds of income tax cuts in Kentucky flow to the wealthiest 20% of people. The richest 1% of Kentuckians will receive an average of $5,528 a year from a half-point reduction in the income tax, while working-class Kentuckians may receive enough for one oil change or a cable bill a year,” according to the Kentucky Center for Economic Policy.
Contrastingly, Senate Appropriations and Revenue Chair Chris McDaniel stated that this bill will keep more Kentuckians’ money in their pockets, saying, “The thing I’m very proud of this body for is in the last seven years, we’ve added another thing that’s fairly certain, which is the General Assembly is going to do everything in its power, and frequently with success, to lower your taxes. And that’s what House Bill 1 is all about.”
Although tax cuts garner support among citizens of the Commonwealth, taxes are necessary to fund vital programs within the state of Kentucky. With Kentucky on a path toward further tax reductions, the debate over fiscal responsibility versus economic relief is far from over.
Photo courtesy of WHAS.
