FRANKFORT, Ky. (AP) — Republicans wrapped up work Wednesday on making a deeper cut in Kentucky's individual income tax rate, sending the bill to the Democratic governor in the midst of an election campaign.
The measure won Senate passage on a 30-5 vote after an hourlong debate.
For Republican lawmakers, it's another step toward achieving a long-running goal to phase out individual income taxes in Kentucky. The attention will quickly shift to whether Gov. Andy Beshear — who is seeking a second term this year — will sign or veto the measure.
A top Senate Republican openly dared the governor to veto the bill, and the state GOP immediately issued a statement trying to put political heat on Beshear.
The governor previously said he was keeping an “open mind” about the measure.
The bill would lower the state's individual income tax rate by a half-percentage point to 4%, effective Jan. 1, 2024. It follows up on last year's tax overhaul, which resulted in a reduction of the tax rate from 5% to 4.5% at the start of this year. The new measure finalizes that cut.
Republicans said Wednesday that the ongoing rate cuts will benefit working-class Kentuckians while promoting further economic gains and population growth.
“I say to the people who do get up and go to work every day, and pay those income taxes, this is for you," said Republican Senate Majority Floor Leader Damon Thayer. "Now you get to decide how much tax you pay by how much you consume.”
The income tax cuts reflect a push by Republicans to shift to a system more reliant on taxing consumption instead of production. The GOP has supermajorities in both legislative chambers.
Democratic senators opposing the measure said many Kentuckians won't reap savings from the income tax rate cut. They noted that last year’s legislation also extended the state sales tax to more services, which they said creates a new tax burden.
“I hope that we’ll be honest with our constituents and quit calling it a tax cut and ... better explain this is a restructuring of our tax structure," said Democratic Sen. David Yates. "And that the majority of Kentuckians will be paying more money out of pocket at the end of the year.”
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.
Beshear vetoed last year's tax overhaul, objecting to extending the sales tax to many more services. As an alternative, the governor backed 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.
Asked recently about the new bill to cut the income tax rate, Beshear responded: “I’ll have to look at how many dollars it will put in the pockets of how many Kentuckians ... and how it could help their lives. I’m certainly keeping an open mind about it and we’ll see once it hits my desk.”
Kentucky has had record-setting private-sector investments and job creation during Beshear’s term.
The income tax bill won House passage last month. The Senate quickly took it up once lawmakers reconvened this week after a monthlong break in their 30-day session.
During the Senate debate Wednesday, Thayer dared the governor to veto the bill. The measure cleared the House and Senate by overwhelming veto-proof majorities.
As part of last year's tax overhaul, Republican lawmakers included certain fiscal conditions that have to be met to trigger incremental drops in the state’s personal income tax rate.
“The safety valves are built in in such a way that I'm confident that we will be able to sustain the growth of the economy in Kentucky and meet the needs of our citizens as it relates to state government,” Senate President Pro Tem David Givens, a Republican, said Wednesday.
But the bill's detractors say cutting the individual income tax will deprive the state of funds needed to bolster spending on education, public safety and other priorities. Yates called it a missed opportunity to make deeper investments in programs “that pay back dividends” for the state.
The income tax cuts come at a time of massive budget surpluses, padded by a huge influx of pandemic-related federal aid.
Republicans said they're delivering what Kentucky voters want by passing income tax rate cuts.
“I have yet to have a constituent come up to me and say ‘you do such a better job of spending my money than I do,’” GOP Sen. Chris McDaniel said.
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The legislation is House Bill 1.
