Republicans cheer as House passes income tax cut to 4%. Democrats say it ‘harms Kentucky.’
Kentuckians saw their income taxes reduced from 5% to 4.5% as the new year began. The Kentucky House just voted 79-19 to lower it again on Thursday – this time to 4% starting next year.
House Bill 1 affirmed the incremental drop that was laid out in a bill passed last year – that legislation, which puts the state on an incremental path to get to 0% income tax, was one of the top priorities among Frankfort Republicans.
In the Thursday vote, House Republicans made it the first bill passed out of any chamber this year. All House Republicans who were present voted to pass the measure and only one Democrat, Rep. Ashley Tackett Laferty of Prestonsburg, joined them in voting yes; all other Democrats voted no.
The bill passed out of the House Appropriations & Revenue Committee in a party line 16-4 vote, with all Republicans voting for and all Democrats voting against it.
Though Democrats are small in number – they’re outnumbered 20 to 80 by Republicans – they pushed back hard on the central claims of Republicans who were giddy to pass their marquee piece of legislation.
Those claims from Republicans include: that cutting income taxes will spur major economic development, that people will move to Kentucky as a result of the cut and that the move will not cripple state.
The word “epic” was used, as it has in past sessions, among those involved with the bill to describe its positive impacts to Kentucky’s economy.
“We’re trying to get our state out of the economic doldrums we’ve been in for the better part of a century,” House GOP Whip Jason Nemes, R-Louisville, said. “... Because there will be more jobs and more taxpayers, there will be more revenue and more money in the pot.”
Democrats argued that the tax cut will make Kentucky more affordable for the rich and more expensive for the poor.
Pam Thomas, with the Kentucky Center for Economic Policy, urged the A&R committee on Thursday morning to slow their roll. Thomas’ employer, a Berea-based think tank, has been a leading voice railing against the tax cut since last year. She framed the move as unwise for the long-term health of Kentucky’s General Fund and Budget Reserve Trust Fund.
The state will lose a significant amount of revenue, as 41% of the money coming into the General Fund comes from income tax revenues, and Thomas argued that Kentucky is not situated as well as other states with no income tax to take that hit.
“The general fund will lose over $1.2 billion annually when the tax rate drops to 4%, more than Kentucky spends on the entire system of higher education… (and) we don’t have a tourist base like Tennessee, Nevada and Florida, and we don’t have oil and gas like Texas, Alaska and Wyoming,” Thomas said.
On the floor, similar sentiments were shared by a majority of House Democrats.
Rep. Josie Raymond, D-Louisville, focused on the disparity between big savings that will be reaped by the wealthiest Kentuckians while one million of the poorest Kentuckians will get less than a dollar a week.
She also forecast that the lower revenues that come in as a result of the tax would serve as a shock to the system.
“This bill doesn’t just not help people. It actively harms Kentucky. When our revenue drops and the economic boon fantasy does not materialize and all federal pandemic aid is gone, we should return to an equitable, graduated income tax so we can adequately cover the costs of public education, Medicaid and public safety,”
House Appropriations & Revenue Committee Vice Chair Brandon Reed, R-Hodgenville, said that he didn’t buy the arguments of the Democrats or the Kentucky Center for Economic Policy, which sent an email to members of the legislature co-signed by various groups urging them to think twice about the cut.
“Now the adults are in the room. No, I do not represent the special interests of those that were in the email, but I do represent the 45,000 people that sent me here to lower their income taxes and make wiser decisions for the Commonwealth,” Reed said.
The vote to pass the bill out of the House moves the legislation over to the Senate, whose Republican leadership has indicated they will give it final passage in February when the legislature returns from break.
Frankfort Bureau Chief Tessa Duvall contributed to this report.
This story was originally published January 5, 2023 at 4:37 PM.
