FRANKFORT, Ky. (AP) — The Kentucky House voted Thursday to build on efforts to cut the state’s individual income tax rate, as Republicans took another step toward achieving a long-running policy objective.
The measure, following up on last year’s efforts to reduce the individual income tax rate, aims to lower the rate by another half-percentage point to 4%, effective Jan. 1, 2024.
The GOP-backed proposal cleared the House on a 79-19 vote after a long debate in which Democrats warned the tax cuts would deprive the state of revenues to pay for vital state services.
The Senate plans to take up the tax-cutting bill in February, when lawmakers will reconvene after an extended break set to begin after Friday. Republicans have supermajorities in both chambers.
The ultimate goal for GOP lawmakers is to phase out individual income taxes in Kentucky. They say it will promote further economic gains and population growth.
The bill is a follow-up to the landmark tax overhaul enacted last year that set the stage for a reduction of the state’s individual income tax rate from 5% to 4.5% at the start of this year. The latest measure finalizes that half-percentage-point drop.
The new bill was put on a fast track this week by GOP House leaders. It cleared the chamber on the third day of this year’s legislative session, hours after a House panel advanced the measure.
The bill’s supporters said the tax cuts will enable Kentuckians to keep more of their income.
“It’s putting more money back (to) the hard-working Kentuckians across the commonwealth,” Republican Rep. Brandon Reed, the bill’s lead sponsor, said during the committee hearing. “They’ll be able to spend their money like they see fit. They’ll be able to pay down debt. They’ll be able to save for their families and spend accordingly.”
The tax-cut debate comes at a time of massive state revenue surpluses. The bill’s detractors said those surpluses were padded by an influx of pandemic aid from the federal government.
They warned that cutting the individual income tax — a key revenue source — would deprive the state of funds that could be used to further bolster spending on education, public safety and other priorities. And it could cause budgetary hardships in times of economic downturns, they said.
“These are permanent cuts, based on temporary conditions,” Rep. Derrick Graham, the top-ranking House Democrat, said during the House debate. “And when these temporary surpluses dry up, how will we fill the hole created by this reduction?”
As part of the tax-cutting effort, Republican lawmakers included certain fiscal conditions that have to be met to trigger incremental drops in the state’s personal income tax rate.
Last year’s legislation also revamped the tax code by extending the state sales tax to more services. The revenue gained from broadening the sales tax base will fall far short of making up for the revenue lost from the income tax cut.
The bill’s opponents said that applying the sales tax to more services puts a burden on lower-income Kentuckians, offsetting any gains reaped from the lower income tax.
“This particular piece of legislation hurts lower-income Kentuckians and helps the wealthier, higher-income Kentuckians,” Democratic Rep. Ruth Ann Palumbo said in committee. “It is not sustainable. Future legislators will have to raise taxes, and we are not being fiscally responsible.”
House Republicans brushed aside the Democratic criticism. GOP lawmakers said policy changes made since their party took control of the House in 2017 set the stage for the income tax cuts.
“We all know that government has gotten way too big,” Republican House Speaker Pro Tem David Meade said during the House debate. “And what we have started doing is making it more efficient and now it is time for the taxpayers to reap the benefits of that. … Let the people of this state keep more money in their pockets. Working toward this tax system is the best way to do that.”