In three of the last four years, Kentucky Republicans have kicked off the legislative session by cutting the state’s individual income tax rate, aiming to eventually eliminate the tax altogether.
This year, amid economic headwinds, another tax cut remains uncertain.
“There will be a revenue measure filed and passed at some point during this session. What that looks like? I’m not ready to say yet,” House Speaker David Osborne told reporters after adjournment on the first day of this year’s session Tuesday.
Osborne, R-Prospect, said lawmakers “continue to have discussions about different measures on tax policy.”
Senate President Robert Stivers, R-Manchester, signaled a more cautious approach, saying Republicans should abide by the fiscal guardrails they established in a landmark 2022 law aimed at reducing the income tax while avoiding the kind of fiscal crisis that followed deep tax cuts in Kansas.
“I’d love to reduce it again, but then you start, ‘Well, what’s the next time? Where’s the next line?’” Stivers said. “We’ve drawn it. We’ve set it. We should abide by it.”
The fiscal triggers for another half-percentage point reduction were barely missed in the most recent fiscal year, though some Republicans, notably House Majority Whip Jason Nemes, are still pushing lawmakers to approve another income tax cut this year.
The 2022 law created a system of fiscal triggers based on state finances to determine when the state can afford to lower the income tax rate by a half-percentage point. Since then the Republican-controlled legislature has lowered the personal income tax rate from 5% to 3.5%, working toward a goal of eventually eliminating it.
In the background of income tax cut discussions is a more challenging two-year state budget that lawmakers need to pass during the 60-day session.
Kentucky expects a $156 million revenue shortfall for the current fiscal year, which economists attribute to uncertainty around trade and tariffs.
Osborne cited national, global and economic “uncertainty” when saying that this may be “the most difficult budget that we will have done since taking the majority.” Kentucky Republicans won control of the House in 2016 for the first time since 1920.
“Normally, when you think of difficult budget situations, you think of it in terms of not having money. And the fact of the matter is that we do have money and our revenues remain strong,” Osborne said. “Uncertainty is the enemy of a good budget, and we have a dramatic amount of uncertainty: Global uncertainty, national economy, things that are coming down (from) House Resolution 1 that we will have to deal with.”
House Resolution 1, better known as the One Big Beautiful Bill Act, will cut Medicaid spending over 10 years by $880 billion. Congress approved the measure last summer. More than 1 in 3 Kentuckians depend on Medicaid to pay for their health care.
“All of those things create uncertainty. And when you have uncertainty, you have a lot of opinions about how to address that and I think that they will require a lot of debate, a lot of conversations,” he said. “I don’t expect that to be contentious by and large, I just think that it’s genuine disagreements and differences in opinions.”
Kentucky is “constantly looking for ways to make our delivery of services better,” Osborne said, to make sure safety net programs are “accomplishing the goals that they’re intended to” while “also being mindful of the fact that these are taxpayer dollars.”
Sen. Chris McDaniel, the Republican chair of the Senate Appropriations and Revenue Committee, said last year that federal food assistance program costs shifted to states through the One Big Beautiful Bill Act could also amount to a $180 million “hit” to the budget.
Senate President Stivers, of Manchester, gave a brighter outlook on the state budget, telling reporters that Republicans “feel like we’re pretty comfortable dealing with the budget as it currently exists.” Lawmakers also have the Budget Reserve Trust Fund to potentially rely on, also known as the state’s “rainy day” fund, which has more than $3.7 billion as of August 2025.
The GOP is expecting growth in the state’s receipts despite recent cuts to the state income tax, Stivers added.
Senate Democrats, who hold a small minority in the chamber, called for more transparency about fiscal matters ahead of lawmakers reconvening Tuesday.
Senate Democratic Floor Leader Gerald Neal, of Louisville, said the caucus would focus on finding solutions to the state’s housing shortage, improving access to health care and education and increasing the state’s minimum wage.
Neal repeatedly said Senate Democrats were concerned about future cost shifts from the federal government to states on programs like Medicaid and SNAP (Supplemental Nutrition Assistance Program) under the One Big Beautiful Bill Act.
“We are beginning at the circumstances that demand both fiscal responsibility and moral seriousness,” Neal said. “Decisions made in Washington are already shifting costs onto states, counties and local communities. Our responsibility in Frankfort is to confront those realities head on and not contend that they do not exist.”