With a little over a month before the GOP-controlled Kentucky legislature begins deciding whether to again reduce the state’s income tax rate, Democratic Gov. Andy Beshear is warning lawmakers against disregarding fiscal “guardrails” that they previously established.  A big decision facing lawmakers when they convene on Jan. 6 for a 60-day session is whether to continue to reduce the state’s income tax rate, which provides billions of dollars in revenue to support state services. Republican lawmakers, through a landmark law passed in 2022, created a system of fiscal triggers based on state revenues and the size of the “rainy day” fund to determine when the state can afford to lower the income tax rate by a half-percentage point. Since then the Republican-controlled legislature has lowered the personal income tax rate from 5% to 3.5%, working toward a goal of eventually eliminating it.   The benchmarks for another half-percentage point reduction were barely missed in the most recent fiscal year, but some Republican lawmakers are expected to press for another income tax cut nonetheless. Beshear during a Thursday press conference appeared to warn Republicans against disregarding the fiscal guardrails that are part of the 2022 law. “We’re going to figure out if our Republican state legislators are people of their word or not,” Beshear said.  The governor also cautioned that state revenues are expected to rise little while costs will be up.  “What we’re going to see in this next budget is that revenue is flat or just up a little bit, but the costs are up a lot more than that. That would further exacerbate that situation,” Beshear said.  “We need balanced sources of revenue because we have programs that are so important.” Beshear at his Thursday press conference also renewed calls for the legislature to expand pre-K to more Kentucky children.  Republican Senate President Robert Stivers, R-Mancester, told reporters that his caucus is discussing the possibility of approving another income tax cut in 2026 this week. Stivers noted that in this year’s session the legislature changed the fiscal trigger system to allow for more incremental cuts. The changes allow lawmakers to potentially reduce the income tax rate by less than a half-percentage point.  But Stivers also said the legislature should follow the “policy and process” it established for deciding when to further reduce the income tax. “We just want to keep following our policy. If we hit it, we hit it. If we don’t, we don’t. But we follow the policy we set,” Stivers said.  Stiver spoke alongside other GOP senators in Bardstown where they were meeting.  House Majority Floor Whip Jason Nemes, R-Louisville, who argued last month that the fiscal triggers were actually met, has said the legislature should move forward with another income tax reduction in 2026, saying state revenues were measured at the wrong time. Beshear has a history of mixed support for income tax cuts. He signed into law this year the latest half point reduction, going against some Democratic lawmakers who worried it would hamper the state’s ability to offer services in the future. The Democratic governor also signed into a law another reduction in 2023 as he was running for reelection. But he vetoed the  2022 reducing the income tax rate. The safeguards in the 2022 law were intended to prevent state revenues from quickly plunging and creating a financial crisis — similar to what happened in Kansas when state lawmakers there slashed income taxes  — and instead allow for a more gradual decrease in the income tax rate to zero.  The state legislature will likely be grappling with less tax revenue to allocate next year in the state budget. Sen. Chris McDaniel, R-Ryland Heights, the chair of the Senate Appropriations and Revenue Committee, said last month the state will take on a $180 million “hit” because of increased costs for federal food assistance shifted to the state. Congress’ passage of the Republican-backed One Big Beautiful Bill Act this summer shifted more administrative costs for the Supplemental Nutrition Assistance Program, or SNAP, which provides nearly 593,000 low-income Kentuckians with funding for food. The amount of SNAP program costs shared with states will also change depending on how often a state makes an error in allocating SNAP benefits for a recipient.  The Consensus Forecasting Group, a group of economists charged with creating state government revenue forecasts, during its meeting in September projected state revenues would fall over $300 million short of what is budgeted for the new fiscal year that began in July.  That projected shortfall amounted to approximately a 2% decrease of the more than $15 billion budget for the fiscal year. The chairman of the forecasting group cited uncertainty with trade and tariffs for the revised revenue projection, while Beshear also pointed to decreases in income tax revenue. The post As KY Republicans mull income tax cut, Beshear warns against crashing fiscal guardrails appeared first on The Lexington Times. ...read more read less