The Kentucky House of Representatives passed legislation to further lower the income tax to 4% on Thursday.
House Bill 1 is a key piece of Republican legislation during the 2023 30-day session. The new bill codifies language from 2022’s House Bill 8, which sought to eliminate the income tax slowly.
The first reduction occurred on Jan. 1, 2023, when the tax decreased from 5 to 4.5%.
Passing along a near-party line vote of 79-19, the bill will move to the Senate in early February when the General Assembly convenes for the second part of the session. The bill passed the House Appropriations and Revenue Committee earlier in the day, 16-4.
“We are another step closer to putting more money back into the pockets of working Kentuckians,” said bill sponsor Brandon Reed (R-Hodgenville).
In a nearly two-hour House debate on Thursday, Democrats questioned why the state’s surpluses are so high at the moment — tax cuts depend on how well the state is doing financially — and lamented that the bill would help rich Kentuckians, as opposed to assisting average income earners in the Commonwealth.
The reductions each year depend on the balance of money in the reserve trust fund, general fund appropriations, and general fund money against the individual income tax expenditure — or, more generally, how the state is doing financially.
Republicans said that with the income tax savings, Kentuckians could save for retirement or pay down debt.
“But nobody but the richest Kentuckians are going to get enough money to do any of that,” said Rep. Josie Raymond (D-Louisville).
Democrats also argue that the state has record surpluses because the federal stimulus money during the COVID-19 pandemic led to a faster-than-expected recovery from the pandemic recession and high inflation.
“The revenue surpluses we see today will be a thing of the past,” said Jason Bailey, the executive director of the Kentucky Center for Economic Policy, in December. “At some point, things will return to the historic norm in which Kentucky has very tight budgets and modest revenue growth.”
In order to recover revenue lost from the tax cuts, the state widened the sales tax base on services, such as magazine subscriptions, parking, digital products, and personal fitness training.
House Minority Whip Rachel Roberts (D-Newport), the lone Northern Kentucky legislator to vote against the bill, said that as a small business owner, her customers might see an increase.
Roberts owns a yoga studio, and she said attendees will now be forced to pay tax on a $20 class, which will increase to $21.60 and lead consumers to question if they want to spend the additional money.
“I think this is a deeply flawed bill,” Roberts said on the floor.
Freshman Northern Kentucky Rep. Steve Doan (R-Erlanger) took to Twitter after he voted “yes” on the bill — his first official vote in the House — to say he will keep working to ensure the government gets out of the way of citizens.
“Throughout my campaign, I listened to the voters who told me that enough was enough,” Doan said. “They deserve to keep more of their hard-earned dollars.”