New year brings income tax cut, economic growth

As we look forward to a new year, hard-working Kentuckians and small business owners should take note of an important bump in their earnings. Thanks to legislation supported by the Kentucky Chamber and passed by the General Assembly, Kentucky’s tax on personal income will drop from 4.5% to 4% at the start of 2024. For Kentucky workers and small business owners, that means more money in your bank account and more resources for everyday expenses like groceries, school supplies, gas or retirement.

What the income tax cut means for Kentucky

Just six years ago, the commonwealth had the 37th worst state tax code in the nation. Most Kentuckians faced a personal income tax rate close to 6 percent, nearly twice the rate of Indiana. Fast forward to today, our tax code is considered 18th best, and we are finally starting to close in on competitor states like Tennessee and North Carolina.

This progress hasn’t happened by accident. Rather, with strong support from Kentucky’s business community, lawmakers have consistently made tax reform a top priority with major legislative packages in 2018, 2019, 2022, and 2023. These initiatives have transformed Kentucky’s tax landscape and are part of a broader strategy to grow Kentucky’s workforce, attract new business investments, and increase economic opportunities for Kentuckians.

Tax reform helps start and grow businesses

While it will take time to feel the full effects of tax reform, the trajectory of Kentucky’s economy since lawmakers first began modernizing our tax code is worth noting. The state surpassed 2 million payroll jobs for the first time in its history last March and added a net 113,000 new jobs between January 2018 and October 2023 (despite the historic job losses suffered in 2020). Tax reform, when combined with other pro-growth policies like workers’ compensation reform, workforce development initiatives and strategic investments in education and economic development, is already making the commonwealth a more attractive environment to start and grow a business.

As lawmakers have worked to reform Kentucky’s tax code, state funding for key services like education, health care and public safety has continued to grow. Contrary to critics of tax reform, who have repeatedly predicted falling revenues and cuts to services, state revenues were 39% higher in 2023 than in 2018. We also now have a robust “rainy day” fund to help us weather difficult times and capitalize on economic opportunities.

Again, this didn’t happen by accident. Kentucky policymakers have been careful to tie tax reform to economic growth. Under legislation passed in 2022, future reductions to the state income tax will only occur when the state meets specific revenue and savings goals. This thoughtful approach ensures that Kentucky will continue investing in key services while pursuing tax reform.

Of course, much more work remains to be done. Pro-growth tax reform is a journey, not a destination, and the Kentucky Chamber will continue to be a steadfast advocate for reforming Kentucky’s tax code. Our top priority for next year’s session is to set the stage for continuing to reduce taxes on personal income. But in the meantime, it is important that we celebrate milestones such as next year’s tax cut and recognize the broader strategy at play. So, when you get your first paycheck of the new year and notice an increase to your takehome pay, know that this is intended not only to help you and your family in the short term but also to build a stronger Kentucky economy for future generations.

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SAM UPSHAW JR./COURIER JOURNAL As lawmakers have worked to reform Kentucky’s tax code, state funding for key services like education, health care and public safety has continued to grow.