Kentucky governor signs GOP-backed personal income tax cut

Democratic Gov. Andy Beshear signed a bill into law Thursday that will reduce Kentucky's individual income tax, expressing confidence that economic growth will offset the loss in revenue.

The measure, which will lower the tax rate from 4% to 3.5% starting next year, sailed through the Republican-led Legislature in the first five days of its session. Beshear followed through on his pledge to sign off on the cut, which is meant to offer relief to Kentuckians dealing with stubbornly high consumer prices.

“This move will put more money in your pocket while things cost too much,” Beshear said at his weekly news conference at the Statehouse.

The income tax cut was a top Republican priority and is the latest of its kind since the GOP gained full control of the Legislature in 2017.

Supporters say the lower rate will promote long-term economic growth and population gains in the Bluegrass State by enabling people to keep more of the money they earn.

Beshear noted Thursday that an analysis estimated that the half-percentage point cut would reduce the state's general fund revenues by $718 million annually once it is fully implemented. The general fund pays for most state services, including education, health care and public safety.

Democratic lawmakers were divided on the bill, with critics of the cut saying the lost revenue would jeopardize essential services in times of an economic downturn.

Beshear sounded confident the state can absorb the revenue loss.

“I believe that with the growth we’re seeing in certain areas of revenue, that we’re going to be able to manage that,” he said.

Beshear pointed to the influx of private-sector investment and jobs added in Kentucky in recent years. Republican lawmakers say those successes resulted from business-friendly policies they passed.

General fund tax receipts in December were up 4.5% from the same period a year ago, the state budget director's office reported last month. Receipts increased 1.7% for the first six months of the fiscal year that ends June 30.

The push for tax cuts in Kentucky comes as President Donald Trump has proposed tax cuts for individuals and businesses, while governors and lawmakers in some states are seeking to cut more. The movement for more tax cuts comes after most states already have slashed income, sales or property taxes in recent years, and it’s pressing ahead even though state revenue growth has been slowing or stagnating.

Since the passage of a tax overhaul in 2022, the individual income tax in Kentucky has gradually been reduced by increments of a half-percentage point, conditioned on meeting benchmarks to ensure revenues are sufficient to meet state spending needs.

As part of that overhaul, the state sales tax was extended to apply to more services. Critics say lower-income families were hurt the most by applying the sales tax to more services.

During state Senate debate on the income tax cut this week, several Republicans said the latest reduction was another step toward what they hope is the ultimate result — eliminating the individual income tax altogether.

Beshear's record on tax cuts is more complicated. He signed an earlier half-point cut in the personal income tax in 2023. He vetoed the tax overhaul in 2022, objecting to provisions that extended the state sales tax to more services. But Republican legislators easily overrode the veto. As an alternative, the governor supported an unsuccessful effort to temporarily cut the state sales tax rate to take some of the sting out of rising inflation that fueled higher consumer prices.