Legislation to cut Kentucky’s personal state income tax rate by one-half percent passed its first legislative hurdle on Wednesday as the House Appropriations and Revenue Committee (A&R) gave the measure, designated House Bill 1, its approval.
The measure is sponsored by A&R Committee Chair Rep. Jason Petrie, R-Elkton. He told the panel, “The rate that is being proposed would go to 3.5 percent on net income, effective Jan. 1, 2026.”
Petrie noted that this proposed cut in the income tax rate is in accordance with 2022 legislation which established the parameters for when the rate can be reduced, and that the State Budget Director’s office certified that the conditions of the amount in the budget reserve trust fund and that state revenue over expenditures needed to make the cuts were met.
Jason Bailey, executive drector of the Kentucky Center for Economic Policy, spoke in opposition to the measure. He said the legislation providing for the half-percent per year tax cuts was enacted when states like Kentucky received a large infusion of federal money due to the COVID-19 pandemic.
“That aid has dried up,” Bailey told lawmakers, “and national forecasters predict states like Kentucky that made permanent tax cuts during this period will face budget challenges as a result, which would worsen if Kentucky enacts another cut to take place in 2026.”
Bailey said the proposed cut would cost the state another $718 million annually, meaning this bill combined with the two previous one-half percent tax rate cuts would cost the state $2.2 billion per year. He urged the members to approach a permanent decision like this with caution, given the experience in Kansas, which had to reverse tax cuts because that state could not meet their basic obligations.
The bill received 17 yes votes, three members passed, and zero no votes, so it now heads to the House floor.
Rep. Jason Petrie, R-Elkton, is the sponsor of House Bill 1 and the chair of the A&R Committee. (LRC photo)
