Cutting income tax to 3.5% ‘will be appropriate,’ says Kentucky Gov. Andy Beshear
Cutting the personal income tax rate down from 4% to 3.5% next year will not be a red versus blue issue — at least not for Gov. Andy Beshear.
Beshear, a Democrat who has approved one previous tax cut but vetoed another, said Thursday that the Republican-backed plan to pass a bill affirming the half-point reduction to the income tax would “be appropriate,” signaling that he won’t veto the legislation during the 2025 General Assembly, which begins in January.
This comes in the wake of news that Kentucky’s total tax revenue receipts are projected to decline for just the third time in the last 50 years.
According to a report submitted by the State Budget Director John Hicks’ office late last month, revenue for Fiscal Year 2025 — which began July 1, 2024 — is expected to drop 1.4%, or by $223 million, compared to last fiscal year.
Beshear emphasized that the expected drop has much to do with the timing of a special corporate tax, as companies paid the tax last fiscal year but took the corresponding tax credits this fiscal year.
“I believe a lot of the recent revenue information is about a pass through entity tax that was a big positive before and now is a negative, but will ultimately balance itself out,” Beshear said.
Republicans in the state legislature agree that, having met statutory requirements, also known as “triggers,” to cut the tax a half-point, the state should go forward with another cut.
Critics of the tax cut note that the special corporate tax is only one reason state revenue is projected to decline and that the timing helped the state hit its revenue trigger to allow for another half-point cut next year.
“The timing on the pass-through entity tax is also a reason the trigger was hit this summer, which only barely occurred and only after the goalposts were moved on the trigger rules, and is what they are relying on to say they can cut the tax again,” Jason Bailey, executive director of the Kentucky Center for Economic Policy, wrote.
Bailey, a consistent voice in Frankfort against the cut, has been joined by several legislative Democrats in opposition. He stated that cutting a strong source of revenue — income tax is the source of about one-third of state revenue — could undercut the state’s ability to provide services like education, Medicaid, criminal justice and more.
“Permanently cutting our largest revenue source will inevitably mean less money to fund our schools and other vital services. We’re already seeing revenues decline as a result despite a strong economy, and it will only get worse the more that tax is reduced,” Bailey wrote.
Republicans in the state legislature kicked off the cuts from an initial 5% income tax rate with an intention to completely eliminate Kentucky’s income tax, though some legislative leaders have stated they might not want to go that far given the likelihood of needing to increase or expand taxes elsewhere to keep the government running.
Though Beshear agrees with Republicans on cutting income tax this time, he added the caveat that he doesn’t want to lose too much revenue.
“One concern that I have is, while I’m glad there are guard rails, the train only moves one direction. At some point, we will hit a point where we can’t provide the services that people expect from government if we lose too much revenue,” he said. “But I believe, with our booming economy, that this next income tax cut is something we can do and still provide the services that are out there.”
