Lawmakers likely to cut state income tax by a half-point in 2023

Lawmakers will consider further reducing the state’s income tax by half a point when the 2023 short session of the Kentucky General Assembly begins and a local legislator who crafted this year’s tax reform bill says there’s sufficient revenue to justify the cut.

Kentucky House Majority Leader Steven Rudy says the first bill the House will consider will be to cut the state income tax rate.  The current tax rate stands at 4.5 percent and Rudy says they want to cut it to 4 percent.

Representative Jason Petrie of Elkton, a Republican who represents Todd, Logan and a portion of Christian County, says all of the benchmarks set out in House Bill 8 to justify a tax reduction have been met and the rate can drop to 4 percent in January of 2024.

Petrie, who chairs the House Appropriations and Revenue Committee, says they can act with assurance the state budget obligations can be met.

The Kentucky Education Association calls the idea an economic loser.  Opponents say it will blow a hole in the state budget at the worst time—right before an anticipated recession.

Petrie believes Kentucky is far too dependent on the income tax and feels the tax reform measures taking effect puts the commonwealth in a better place to face any potential recession.

House Bill 8, Petrie’s tax reform bill from this year, expanded the number of services that require payment of the state sales tax, without expanding the sales tax to groceries or prescription medication.

Representative Petrie says Kentucky’s overall revenues increased over the next two years after the income tax was reduced by a point in 2018.

The overall goal of the tax reform measures is to eventually get Kentucky to a zero-income tax, consumption tax-based system similar to Tennessee.