FRANKFORT — The Kentucky Senate passed a bill Monday that would tap into the state’s massive revenue surpluses to deliver more than $1 billion in income tax rebates to taxpayers.
The measure cleared the Senate on a 28-7 vote just days after being unveiled. It would grant state personal income tax rebates of up to $500 per individual and up to $1,000 per household.
The proposal next goes to the House, where a separate measure introduced last Friday would gradually reduce Kentucky’s individual income tax — with the long-term goal of eliminating the levy. The sweeping House bill also would extend the state sales tax to a host of services.
Budget and taxation measures are expected to dominate work in the final weeks of this year’s legislative session. Republicans have supermajorities in both legislative chambers.
GOP Sen. Chris McDaniel, who is sponsoring the income tax rebate, said the measure would deliver some relief for Kentuckians struggling with rising prices for fuel, groceries and utilities.
“This bill is not a statement about anything other than who gave the state this money and who needs this money the most,” McDaniel said during the long Senate debate Monday.
The one-time rebates are expected to cost the state up to $1.15 billion. If the proposal becomes law, the rebates should be distributed to Kentuckians by the end of this summer, McDaniel has said.
Democratic Sen. Reginald Thomas called it bad tax policy, saying broad sections of the state’s population — including retirees and the working poor — would not benefit from the rebates.
Instead, he touted a proposed temporary cut in the state sales tax rate as a way to provide widespread relief from rising consumer prices. Democratic Gov. Andy Beshear has endorsed that bill, which proposes a one-year cut in the sales tax rate from 6% to 5%. It would deliver $873 million in tax relief for Kentuckians struggling with rising prices, the governor has said.
Beshear also took executive action recently to grant relief to Kentucky taxpayers hit with pandemic-related increases in their vehicle property tax bills. The order — stemming from a surge in used car values — will amount to about $340 million in reduced vehicle property taxes, he said.
Sen. Morgan McGarvey, the top-ranking Senate Democrat, urged his colleagues Monday not to vote on the rebate without knowing what impact the lost revenue would have on the next state budget.
Noting the proposed rebate’s $1 billion-plus price tag, McGarvey asked: “What investments are we not making to make this investment?”
The bill’s supporters said the state would still hold huge amounts of budget reserves and excess revenues after paying the rebates, along with another round of federal pandemic relief to allocate.
Supporters stressed the value of the rebate for Kentuckians feeling the pinch from rising prices.
“For some of us, the amount of money we’re talking about in this bill may not make a big difference,” said Republican Sen. Ralph Alvarado. “But I would argue for the average middle-class family in this state ... it will make a huge difference. A thousand dollars is a lot of money to our Kentucky families.”