For the second consecutive year — and the third time in four years — Kentucky tax revenues fell short of what was needed to trigger a reduction of the individual income tax rate.
In a letter Friday to the Republican chairs of the legislative budget committee, state budget director John Hicks wrote that the state’s General Fund revenue in the fiscal year ending June 30 was more than $1 billion shy of the trigger threshold to cut the tax rate from 3.5% to 3% in 2028.
Kentucky not only missed the half-percent tax cut trigger this year, but also a lower budget threshold passed into law last year that would have allowed the rate to be cut by a smaller amount.
The Kentucky General Assembly created the complicated tax cut mechanism in 2022, aimed at incrementally lowering the individual income tax rate by .5 percentage points until it is eventually eliminated. The rate is lowered so long as the state budget reserve trust fund is at least 10% of General Fund revenue at the end of a fiscal year, and such revenue would have exceeded General Fund spending even if the tax rate had been one percentage point lower.
Amid frustration among Republican lawmakers that tax cut triggers would become harder to reach in future years, the legislature passed a bill in the 2025 session to make hitting the triggers easier, allowing a reduction of .25 percentage points even if state revenue fell somewhat short of the threshold.
Republican Sen. Chris McDaniel, the Senate budget committee chairman from Ryland Heights, told Kentucky Public Radio it was not a surprise that Kentucky did not hit the tax cut triggers this year.
“I expected that we would not hit the triggers this year for a variety of factors, but, you know, it definitely demonstrates the responsibility and the reactiveness of the model we have set up,” McDaniel said.
While some in the Republican supermajority want to speed up the elimination of the income tax — arguing it would boost economic growth — others have stressed the need for patience. McDaniel has long stated that the trigger mechanism is designed to ensure Kentucky is not cutting taxes too quickly, wanting to avoid the cautionary tale of Kansas.
After enacting large tax cuts in 2012 and 2013, Kansas fell well short of its expected economic growth, leading to emergency cuts to public education and other government services before it rolled back the cuts in 2017.
Asked if missing the tax cut triggers again may lead more Republican lawmakers to call for changing the mechanism to make cutting taxes easier, McDaniel said that is possible, “but I think that people, all in all, are committed to doing the reductions in a responsible way.”
“We're just going to have to have more conversations about how we're spending and what we're spending and what revenues are, and go from there,” he said.
Kentucky hit the tax cut trigger the summer after the mechanism was passed into law in 2022, allowing the individual income tax rate to be cut to 4% at the beginning of 2024, but has missed in three of the four following years.
In the 2023 fiscal year, state revenue fell $435 million short of hitting the tax cut trigger, but recovered enough to hit the budget triggers in mid-2024, allowing the rate to be lowered to its current 3.5% at the beginning of this year.
At the end of the 2025 fiscal year last summer, state revenue barely missed hitting the threshold, falling $7.5 million shy of triggering a reduction to 3% in 2027. It would have triggered a lower quarter-point reduction to 3.25%, but that 2025 amendment to the trigger law didn’t go into effect until this year.
In the fall of 2025, GOP Rep. Jason Nemes of Louisville argued that Kentucky had actually hit the trigger that summer and the legislature should vote to cut the tax rate anyway, though Republicans did not advance that strategy in the 2026 session.
