Kentucky’s individual income tax rate is set to remain the same in 2025 after the state failed to meet certain fiscal requirements that would have ushered in another reduction under a Republican plan to phase the tax out.
According to a recent letter to lawmakers from state Budget Director John Hicks, only one of two trigger conditions were met in the state fiscal year that ended June 30.
Kentucky achieved a balance in the Budget Reserve Trust Fund that was at least 10% of General Fund revenue, but came up short on another condition — that General Fund revenues exceeded appropriations and the cost of a 1% reduction in the income tax. The conditions linked to the tax cuts were met for 2023 and 2024, triggering half-percentage-point cuts for both years.
The rate is set to drop to 4% at the start of 2024.
Hicks’ report is required by the legislature as a condition of the 2022 plan to gradually eliminate the individual income tax. His letter to lawmakers gave financial details, but Democratic Gov. Andy Beshear’s office said it should not be construed as any statement on the tax cuts.
The gradual phase-out of the tax was the cornerstone of a Republican plan approved in 2022 to shift the tax burden from income to consumption. Supporters of the plan said it will fuel more economic growth and population gains by enabling people to keep more of the money they earn. Opponents have argued the changes benefit wealthy Kentuckians at the expense of those least able to bear the tax burden because sales taxes tend to be regressive. Critics also worried the phase-out would deprive essential state services of sufficient revenue.
While the income tax is set to remain the same in 2025, the GOP chairmen of the House and Senate budget committees said the pause shows that the legislation is working as intended.
Source : Yahoo
