SENATE GIVES FINAL PASSAGE TO TAX CUT, KEEPING MORE MONEY IN KENTUCKIANS' POCKETS
FRANKFORT, KY (Feb. 4, 2025)—The Kentucky Senate wasted no time delivering additional financial relief to working families, giving final passage to House Bill (HB) 1 on the first day back for part two of the legislative session. The measure, passing by a vote of 34-3, lowers the state's individual income tax to 3.5 percent beginning in January 2026 and continues the responsible, pro-growth policies that have made Kentucky more competitive.
"This disciplined approach to tax reform ensures Kentucky remains on a path of economic strength while keeping more money where it belongs—in the pockets of hardworking Kentuckians," said Senate Budget Chair Chris McDaniel, R-Ryland Heights, who carried the bill in the Senate. "Our goal is simple: let people keep more of what they earn while ensuring government lives within its means."
A PROVEN, DISCIPLINED APPROACH
HB 1, sponsored by House Budget Chair Rep. Jason Petrie, builds on the structured income tax reduction plan established by 2022's HB 8. Per the Kentucky constitution, all appropriations and revenue-related legislation must originate in the House. HB 1 passed with overwhelming bipartisan support before moving swiftly through the Senate.
"Kentucky's economy is stronger than ever, thanks to a solid, conservative fiscal approach—the same strategy that recently earned the state credit rating upgrades from Moody's, Standard & Poor's, and Fitch," said Senate President Robert Stivers, R-Manchester. "Stronger bond ratings, growing reserves, and ongoing income tax reductions are all direct results of strategic policymaking and the conservative principles championed by Kentucky's supermajority."
Kentucky's measured, trigger-based approach to tax reform ensures reductions occur only when revenue conditions allow. Under HB 8's responsible framework, tax cuts are only triggered if
the state's budget reserve trust fund (rainy day fund) maintains a balance of at least 10 percent of annual General Fund revenues, and
total general fund revenues exceed the combined amount of annual appropriations and the cost of a 1 percent reduction in the income tax rate.
"This system was designed to guarantee responsible, measured progress, and it has worked exactly as intended," McDaniel said. "Time and time again, naysayers have predicted financial disaster, but the facts tell a different story—income taxes are lower, essential services remain funded, and our rainy day fund is at its strongest level ever.
"The best validation of the Republican supermajority's leadership is seeing many of our Democratic colleagues—and even the governor, who vetoed the enabling legislation in 2022—now acknowledging its success."
McDaniel emphasized that Kentucky has taken a disciplined approach and avoided the pitfalls of states that rushed tax cuts without safeguards.
"HB 8's trigger mechanism protects both taxpayers and critical services. This is the difference between Kentucky's responsible leadership and the reckless policies of states like Kansas or, more recently, West Virginia, where unsustainable tax cuts created budget crises and forced painful corrections," he said. "Unlike those failed experiments, Kentucky's approach keeps tax relief sustainable, ensures state services remain funded, and strengthens our long-term economic outlook."
The first two rate reductions under HB 8 have saved taxpayers an estimated $1.8 billion through December 2024. Once implemented, the latest authorized reduction through HB 1 is expected to save them an additional $718 million annually.
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Sen. Chris McDaniel, R-Ryland Heights, represents the 23rd Senate District in northern Kenton County. McDaniel serves as chair of the Senate Appropriations and Revenue Committee and co-chair of the 2024-26 Budget Preparation and Submission Committee. He is an ex-officio member of each budget review subcommittee. Additionally, McDaniel is a member of the Senate Committees on Licensing and Occupations and State and Local Government. He is also a Public Pension Oversight Board member.
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