Kentucky Politics

Kentuckians could get up to $500 back on their state taxes under a bill that passed out of a legislative committee on Thursday morning. Joint tax filers would receive up to a $1,000 rebate, depending on how much they paid on their 2020 state taxes.

Senate Bill 194 would cost the state about $1.15 billion, a huge chunk of the budget surplus Kentucky is expected to bring in this fiscal year, which ends in June. 

Sen. Chris McDaniel, the chair of the Senate budget committee and sponsor of the measure, said it would provide relief to Kentuckians experiencing “crushing” inflation.

“As they continue to struggle with that issue, they need help in some way shape or form,” McDaniel said. “And the fact is through conservative budgeting and unanticipated revenues, we have the money to be able to do that, and we have the responsibility to do that.”

Amid the uncertainty of the coronavirus pandemic, Kentucky lawmakers passed limited budgets over the last two years that largely continued state spending at previous levels.

Partly because federal relief packages injected money into state government and some people’s pockets, Kentucky’s tax revenue didn’t dip as much as expected during the pandemic, meaning the state still had plenty of money to cover expenses, and then some.

Last year, Kentucky had a $1.1 billion budget surplus that Gov. Andy Beshear immediately put into the state’s rainy day fund. On Thursday, McDaniel said the state could have a surplus of $1.94 billion when the fiscal year ends on June 30.

McDaniel said over the last two years the state has written “exceptionally conservative budgets” and tax revenue was “dramatically” more than anticipated expenses.

Republicans in the legislature have indicated they want to leave most of that money unspent this year and return it to taxpayers in one way or another.

Many Republicans have hinted at a sweeping “tax reform” plan that would reduce income taxes for Kentuckians while shifting the state’s revenue-generating scheme to consumption taxes like the sales tax, though no proposal has come forward yet.

Sen. Mike Nemes, a Republican from Shepherdsville, said the surplus shouldn’t be used on state services, but people can spend it on related efforts if they want.

“We have some extra money, give it back, we overtaxed them. And if there are people saying you should spend it on this or that, let the people decide. You take your part and spend it on that, give it to charity, give it to whatever you want,” Nemes said.

Not every Kentuckian will get a $500 rebate, and not every household will get a $1,000 rebate under the proposal. Only people who made enough money in 2020 to have to pay state taxes will get a check back.

Jason Bailey, executive director of the Kentucky Center for Economic Policy, a progressive think tank, said the proposal excludes some Kentuckians.

“SB 194 is not as big a giveaway to the wealthy as an income tax rate cut. But it is inequitable as it leaves out the poorest Kentuckians and most elderly people, and it is a poor use of $1.15 billion that is needed to reinvest in our schools and other budgetary needs,” Bailey wrote in an article published Thursday.

If the measure passes, McDaniel said the refunds could come as soon as this summer.

Ryland Barton is the Managing Editor for Collaboratives.