Kentucky has been gradually lowering its income tax in years that it's met a series of financial benchmarks or "triggers." This year, the state did hit those numbers, clearing the way for another cut — this time from 4 to 3.5 percent.
Yet a recently revised forecast delivered by the state's budget director showed general fund revenue slipping by $213 million or 1.4% in fiscal year 2025. That's raised questions about whether it's wise to trim the rate further in the coming year.
Republican Rep. Michael Meredith tells WUKY his party feels confident that the state can handle the cut, and the guardrails put in place will prevent Kentucky from going too far.
"We've hit the trigger for this. We'll make the move in January to lower the rate by another half-percent, and then we'll watch it as we move forward," he said Tuesday in Lexington. "We we've always known that there might be years just like last year when we didn't hit the trigger... I think once we got to that 3.5 to 2.5 range, it was going to be more difficult to hit triggers going forward."
"The measured process that we have in place right now will continue to work."Kentucky Rep. Michael Meredith (R)
The way Meredith characterizes it, walking the rate down might become a slower process as the numbers get tighter.
"It doesn't mean we won't hit them in some years, but it may take a little longer," he said. "It might be a couple of years or three years before we get to that next drop."
Critics have charged the legislature with sidestepping some previous rules it had set in order to make the benchmarks this year, and they worry moving forward amid a drop in revenue opens the door to slashing key services in the future.
Asked about colleagues who want to see a speedier move toward complete elimination of the income tax, Meredith acknowledged that goal would shift the conversation to budget cutbacks.
"If we're going to move at a faster rate, we're going to have to look at cost savings in the budget and we're probably going to have to look at how we broaden the base further," Meredith said. "But again, I think the measured process that we have in place right now will continue to work. It's just a matter of speed and whether you want to change other components of the process."
Jason Bailey with the Kentucky Center for Tax Policy, a reliable opponent of such budget cuts, told the Kentucky Lantern whittling down the income is move "skewed to benefit the affluent while reducing money to pay for education, health care, public worker salaries, and benefits among other services."
Kentucky Senate President Robert Stivers has identified the half-a-percentage-point decrease in the tax as a top priority when lawmakers return in January.