Kentucky’s income tax rate is set to decrease from 4% to 3.5% in January, but state lawmakers are split on whether additional tax cuts should move forward in 2027.
The divide stems from differing views on whether Kentucky satisfied its budget triggers over the summer to justify further reductions. House and Senate leaders disagree on how the state’s revenue performance should be interpreted.
Over the past several years, cutting taxes has been one of lawmakers’ top priorities. Last month, the Kentucky House Republican Whip said the General Assembly should keep lowering the income tax rate. Senate President Robert Stivers, however, remains unconvinced.
The split traces back to Kentucky’s tax cut framework created in 2022, when Republicans passed legislation establishing a system to gradually reduce the income tax rate until it is fully eliminated. Those reductions are tied to specific budget requirements, and this summer Kentucky failed to meet its revenue trigger, based on some interpretations.
Stivers said lawmakers should adhere to the policy they put in place.
“We set a policy and process and when you set the policy and process, you should follow it and we try to follow it,” Stivers said.
Stivers stressed that businesses value consistent policy so they can clearly understand the environment for operating in Kentucky. He acknowledged that the trigger mechanism may need occasional adjustments, but said the state does not need to make further changes.
“Now, we know that you have to modify it on occasion – in the last session we did to where it may not be as big of an incremental decline, but we set some different triggers that would give us the ability to hit those incremental spots to make incremental declines. I don’t think we need to go there because we set the policy,” Stivers said.
Those pushing to continue cutting taxes, however, argue that the revenue trigger was met, setting the stage for debate when lawmakers return to Frankfort in January.
Leave a Comment