GOP lawmakers in Kentucky have overridden a veto by the state’s Democrat Governor Andy Beshear to pass a planned reduction of the state’s flat tax from 5% to 4.5%. The bill also plans for more tax cuts in the future. The WSJ reports:
Kentucky’s House and Senate voted Wednesday to override the veto of Democratic Gov. Andy Beshear and enact the tax reform they passed last month. The plan reduces the state’s flat income-tax rate to 4.5% from 5% in 2023 and creates a trigger for more cuts down the line. Automatic 0.5-point rate cuts will kick in each year that state reserves hold up and revenue exceeds spending.
It’s the latest example of a state making responsible use of a two-year budget windfall, committing to leave money in the private economy. Kentucky’s balanced-budget amendment made the move even more urgent because periods of tighter revenue foreclose the possibility of tax cuts. Reducing the income tax for all Kentuckians will go far in a state that ranks 44th in median household earnings, and which has lagged behind neighbors in recent job growth. The first cut next year will return about $550 million to the economy.
Gov. Beshear rarely spares the veto pen—the tax reform was among 25 bills he sent back to the GOP-controlled Legislature this year. Still, Kentucky Democrats may regret aligning themselves against the tax reform.
Like most others, the Bluegrass State has run large surpluses in the past two years, and its rainy-day fund currently equals about 14% of annual revenue. Mr. Beshear pledged in January to foster a “vibrant, diverse economy that can support our workforce in the face of whatever challenges arise.” His veto of a restrained, incremental tax cut shows he’s more concerned with preserving spending.
The tax cut’s success also highlights the progress of Kentucky Republicans. It’s been four years since former GOP Gov. Matt Bevin proposed a path to end the income tax, only to be overridden by his own party in the Legislature. The revenue surge has made it easier to cut taxes, though the balanced-budget requirement would have helped Republicans rein in spending had they embraced the steeper cuts earlier.
Intensifying tax competition was likely another factor in the political turnaround. Kentucky shares its longest border with Tennessee, which boasts no income tax and has outpaced its northern neighbor in manufacturing growth. Ohio cut its top rate on income to 4.99% last year, and Indiana last month put its top rate on a downward path to 2.9% over seven years.
Lawmakers in Kentucky understand that to stay in America’s growth corridor, a state has to encourage growth. It seems Gov. Beshear would prefer stagnation and government control to the idea of giving Kentuckians back their own money.
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E.J. Smith - Your Survival Guy
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