With budget harms becoming clear, it’s time to halt income tax elimination | Opinion

President Ronald Reagan pushed massive tax cuts through Congress shortly after taking office in 1981. But when the country’s budget started bleeding red ink, Reagan reversed course and raised taxes in 1982 and 10 more times after that.

Similarly, the state of Kansas enacted huge tax cuts starting in 2012. But when those income tax reductions blew a hole in the state budget, the Republican legislature rolled them back just five years later.

In both cases, the theory behind trickle-down economics — that income tax cuts for wealthy people and corporations will spur economic growth and pay for themselves — failed to pan out. Time after time, confident elected officials enamored of this ideology have watched it collide with reality.

In recent years, the Kentucky General Assembly pursued a similar experiment. Its top priority has been to cut and ultimately eliminate the individual income tax, previously the source of nearly half of state General Fund revenue. It moved toward this goal by passing a “trigger formula” that recommends permanent reductions in the tax rate based on a one-year snapshot of revenues, spending and reserve balances.

But now revenues are weakening as a result, and the legislature looks headed for a familiar dilemma. Will state lawmakers barrel ahead with more tax cuts in the upcoming legislative session, even in the face of flashing warning signs? Or will they pause and consider what Kentucky really needs?

After shifting its graduated income tax to a flat tax in 2018, the General Assembly began passing the largest tax cuts in state history in 2022. These income tax reductions, approved at a time when the national economy was booming, were phased in to push the costs off until later. Whereas the top income tax rate was 6% before 2018, it will be just 3.5% as of January 2026.

Since the cuts began, the pandemic stimulus boom has come to an end. The national economy has weakened further, in part due to federal tariffs, deportations and budget cuts. At the same time, the One Big Beautiful Bill Act (OBBBA) that passed Congress this summer passes huge new costs on to states for SNAP food assistance and Medicaid. And the harm of the state income tax reductions on revenue are starting to show, with Governor Beshear recently announcing a projected $305 million budget shortfall this year.

As conditions began to deteriorate, the legislature moved the goalposts on its trigger formula to make tax cuts more likely. Lawmakers exempted expenditures that had been passed through the Budget Reserve Trust Fund from counting as spending. In the last budget they put certain spending items in a separate bill that was then arbitrarily shielded from the trigger rules. And in 2025, the legislature changed the formula to recommend smaller tax cuts even if the previous benchmarks were not hit.

But because income tax cuts are so expensive to the state, hitting the trigger is still increasingly difficult. And it was missed this summer despite an enormous bump in corporate tax payments that is not expected to continue. That means the legislature’s own formula does not recommend a reduction of the income tax rate from 3.5% to 3% in 2027.

Regardless, some members of legislative leadership recently suggested they might charge ahead with a tax cut anyway. That would go beyond moving the goalposts to simply tearing them down.

All this undermines the claim that decisions to eliminate the state’s largest revenue source, the benefits of which go overwhelmingly to the wealthy, are undertaken with prudence or somehow based on evidence. These cuts are just a choice to take resources away from the schools, hospitals and infrastructure that benefit everyone, and send them to the powerful few.

Now is the time to take a fiscally responsible approach that puts all Kentuckians first. It begins with stopping further tax cuts and avoiding the mistakes of those who’ve pursued this path before.

Jason Bailey is executive director of the Kentucky Center for Economic Policy, www.kypolicy.org.