The Beshears greet attendees in the House chamber during the State of the Commonwealth address in Frankfort on Jan. 4. (Kentucky Lantern photo by Arden Barnes)
FRANKFORT — Gov. Andy Beshear has signed the Republican legislature’s top priority, another cut in the state income tax, although the Democratic governor said lowering the sales tax would have helped more Kentuckians.
Facing reelection this year, Beshear said in a video Friday that he decided to sign the legislation, which most Democratic lawmakers had opposed, because of Kentuckians’ need for relief from inflation.
While inflation is temporary, Beshear said, “it’s still going to last for some time into the foreseeable future, and our people need relief. Now the best way to provide that relief would have been a reduction in the sales tax. A reduction in the sales tax for a certain period of time would have meant things that cost too much cost less, but the General Assembly refused to go that route.
“So what I’m faced with is a bill that would lower the income tax that has some long-term repercussions for potentially funding state services, but it would put at least a couple $100 in the pockets of most Kentuckians at a time when they need it,” the governor said.
Beshear last year vetoed a Republican bill that shaved a half-percent from the income tax rate and set in motion this year’s further reduction, in a process that some Republicans hope will eliminate the income tax over time. The legislature easily overrode Beshear’s veto last year.
This year’s House Bill 1, which Beshear signed, makes another half-percent cut to the state income tax from 4.5% to 4%, beginning in 2024.
Last year, the General Assembly passed a measure tying income tax cuts to specific financial triggers that would have to be met each fiscal year for the rate to be lowered, such as a balance in the state’s rainy day fund of at least 10% of the state’s General Fund receipts for the last fiscal year.
Democratic lawmakers and other opponents of last year’s law and this year’s HB 1 say the state’s current huge surplus is the temporary result of federal stimulus and relief spending during the pandemic, and that the loss of income tax revenue will force painful cuts in state services in the future.
In his comments, Beshear noted that while gas prices have gone down, inflation is affecting grocery store bills. He said that January’s income tax collections were at a record high, despite the the rate cut, and the state budget can sustain the recent income tax cuts for now.
The bill’s lead sponsor, Rep. Brandon Reed, R-Hodgenville, said in a statement that last year’s passage to lower the income tax “approximately $625 million a year in the paychecks of working men and women and makes our state more competitive for jobs, workers, and economic investment.”
“HB 1 ensures that we take the next step by lowering the rate to 4% in 2024. Building a strong economy today is how we afford the progress we want for tomorrow,” Reed said. “To accomplish that, we must focus on policies that empower working Kentuckians instead of continuing with the status quo.”
He added his appreciation for Beshear’s signature, “as well as his attention to the fact that the legislature’s efforts to reform our state’s tax code and pass policies to make the state more competitive are paying off for Kentuckians. However, I also want to point out that this money belongs to the people of Kentucky. They earned it, not their state government. We are merely the trustees of these resources and we are obligated to investing each dollar responsibly.”
The Republican Party of Kentucky issued a statement calling Beshear’s decision a “blatant political move.”
“This is just the latest example of Andy Beshear taking credit for Republican policies after having previously vetoed them,” RPK spokesman Sean Southard said.
“Last year, Andy Beshear vetoed the process which makes today’s Republican tax cut possible. He has spent countless hours attacking Republicans for this policy approach and left the members of his own party out to dry on it. What’s different between last year and this one? There’s an election this November. From his mishandling of our unemployment system, our Department of Juvenile Justice, his Team Kentucky Slush Fund, and the learning loss of our children, Andy knows he’s vulnerable to whoever wins the Republican primary for Governor. It is a blatant political move and Kentuckians will see through it.”
House Democratic caucus leaders Derrick Graham, Cherylynn Stevenson and Rachel Roberts issued this statement: “Last year, our caucus favored two other tax-cut proposals that would have benefited more Kentuckians more quickly, with one temporarily lowering the sales tax and the other issuing rebate checks. We still think those are much better options, and neither would have put a permanent hole in state spending for schools, public safety and critical health and human services.
“We look forward to working with Gov. Beshear in his second term to restore better balance to our tax system.”
Coupled with last year’s cut in the income tax rate, the cut that Beshear just signed is projected to cost the General Fund $1.2 billion a year.
This article has been updated with new information and responses.
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