Louisville, Ky. — In a swift move early in the 2025 legislative session, Kentucky lawmakers have approved a significant reduction in the state’s individual income tax rate, fulfilling a key priority for Republican leaders. The measure, which will lower the rate from 4% to 3.5% beginning in 2026, passed the Senate on Tuesday with overwhelming support, securing a 34-3 vote.
The bill is expected to be signed into law by Democratic Governor Andy Beshear, who has expressed support for the tax cut despite concerns from some lawmakers. The reduction continues the trend of tax cuts that began in 2017, when Republicans gained full control of Kentucky’s legislature.
Republican Senator Chris McDaniel, a key proponent of the tax reduction, celebrated the move, highlighting it as a victory for Kentucky taxpayers. “It’s been said that there are only two things in life that are certain – death and taxes,” McDaniel said. “We’ve added another thing that’s fairly certain — the General Assembly is going to do everything in its power to lower your taxes.”
Supporters of the bill argue that the tax cut will spur long-term economic growth by allowing Kentuckians to keep more of the money they earn, which they believe will lead to increased investment and population growth in the state.
However, the tax cut has faced opposition from some Democratic lawmakers, including Senator Cassie Chambers Armstrong. Armstrong expressed concerns that the policy would disproportionately benefit wealthier Kentuckians, leaving lower-income families with fewer benefits. She pointed to alternative measures, such as a refundable child tax credit and sales tax exemptions for essential goods like diapers, as better ways to provide targeted relief to those in need.
In response, Republican Senator Michael Nemes defended the broader approach, emphasizing that the income tax reduction gives Kentuckians the opportunity to retain more of their earnings. “They earned it,” Nemes said. “It’s their money, not ours.”
The tax cut is projected to save Kentucky taxpayers an additional $718 million annually, continuing a pattern of reductions that began with a broader tax overhaul in 2022. This overhaul had already reduced the income tax by increments, with future cuts contingent on meeting revenue benchmarks. The overall aim, particularly among Senate Republicans, is to gradually eliminate the individual income tax entirely.
Despite the cuts, some lawmakers, like Democratic Senator David Yates, have voiced concerns about the long-term fiscal impact. While Yates acknowledged the current economic climate might justify the cuts, he warned that the state must maintain a diverse tax structure to avoid jeopardizing essential public services. “You have to have taxes in order to run a system of government,” Yates stated.
Republican lawmakers, however, remain focused on the broader goal of further reducing the state’s income tax rate. Some have already suggested that future cuts could go even deeper, possibly by three-quarters of a percent or even 1% in coming years. Senate Republican Gex Williams raised the prospect of such cuts beginning in the 2026 legislative session, when lawmakers will craft the state’s next two-year budget.
With the latest tax cut bill now set to become law, all eyes will be on Kentucky’s fiscal outlook as the state moves closer to a future where the income tax could eventually be eliminated altogether.