Kentuckians may see another state income tax cut next year. The House Appropriations and Revenue Committee started the process of reducing the state income tax from 4% to 3.5% beginning Jan. 1, 2026, by approving House Bill 1 on Wednesday.
Committee Chair Rep. Jason Petrie, R-Elkton, said HB 1 is the next step in a process that began with House Bill 8 in 2022 to reduce the state income tax. Petrie is the primary sponsor of HB 1.
HB 8 established “triggers” that permit the general assembly to lower the state income tax rate by either a half or full percentage point once state revenues reach certain levels.
Rep. Tina Bojanowski, D-Louisville, asked Petrie what would happen if future projections indicate the general assembly should reverse the tax cut.
Petrie said there are several ways the legislature could address the issue.
“You would reverse it by statutory amendment modification, just like we’re doing in a different direction today,” Petrie said. “Or you would focus on budget, or you would focus on revenues and expenditures … those are three easy places to go.”
Jason Bailey, executive director for the Kentucky Center for Economic Policy, said Kentucky will face budgetary issues if cuts are made to the state income tax.
“A recent state forecast predicted revenues will decline by $213 million this year, and the state will face a shortfall,” Bailey said.
In continuing the discussion on HB 1, House Minority Caucus Chair Al Gentry, D-Louisville, asked Petrie about the state moving toward an all-consumption-based tax structure and working toward becoming a zero-income tax state.
“What is the general reason for doing that? Is it trying to promote growth for people moving into the state?” Gentry asked.
Petrie said that there is evidence that supports the theory that a lower income tax will lead to population and economic growth.
“There’s a good amount of support for the theory that as the income tax becomes much more competitive with other states, there’s reason for people to stay here, as well as locate here, as well as economic growth,” Petrie said.
The committee approved HB 1 by a 17-0 vote with three members passing.
Gentry recorded a “pass” vote on HB 1 in committee, but said he may vote in favor of the legislation on the floor once he does more research.
“I don’t see any reason to vote ‘no’ on this bill yet other than not really being in 100% agreement on the entire model of going to where we’re going, because I feel like it benefits higher-income people at the expense of lower-income people,” Gentry said.
HB 1 will now go before the full House for consideration.
Information from the Kentucky Legislative Research Commission.
