The Republican supermajority caucus of the Kentucky Senate kicked off its annual planning retreat in Bardstown on Wednesday, highlighting their major policy goals for the upcoming 2026 legislative session that begins in January.
The top agenda item for the session is the passage of a state budget that will outline how to spend roughly $15 billion in General Fund tax revenue over each of the next two fiscal years.
Speaking to reporters ahead of the retreat, GOP Senate President Robert Stivers of Manchester countered the opinion of a House Republican leader who argued last month the legislature should pass an income tax cut this session, despite the state missing the budget triggers for a half-percentage point cut this past summer.
“We set a policy and process, and when you set the policy and process, you should follow it,” said Stivers, when asked if they should cut taxes anyway.
Republicans passed their landmark bill in 2022 to create a mechanism to cut the individual income tax rate each year so long as certain budget conditions are met, aiming to do so incrementally until income taxes are eliminated. At the end of the last fiscal year this past July, Kentucky fell just $7.5 million in revenue shy of hitting the triggers — the second time it failed to do so over the past three years.
At a legislative preview conference hosted by the Kentucky Chamber of Commerce in November, Rep. Jason Nemes, the House GOP whip from Middletown, rejected the premise that the tax cut trigger was not reached, and said that even if it wasn’t, the legislature should cut taxes anyway.
Stivers said Wednesday that businesses want consistent policy so they know the landscape of doing business in Kentucky.
“I think from that perspective, we just want to keep following our policy,” Stivers said. “If we hit (the tax cut triggers), we hit it. If we don't, we don't. But we follow the policy we set.”
Stivers added that the trigger mechanism has to be modified “on occasion," noting they did so in the 2025 session to allow smaller incremental tax cuts if the original budget triggers on revenue and spending are not met.
The Senate GOP leader said this was his opinion on the tax cut issue and that his caucus would discuss it further in the coming days at their retreat. Sen. Chris McDaniel, the Republican chair of the Senate budget committee from Ryland Heights, voiced an opinion similar to that of Stivers on the same panel where Nemes called for a tax cut. Budget legislation must begin in the House before it can reach the Senate.
The income tax rate goes from 4% to 3.5% starting in January due to Kentucky hitting the budget triggers in the 2024 fiscal year, and could have gone to 3% in 2027 if the triggers had been reached this summer. Legislative staff estimated this year that a .5 percentage point cut to the tax rate would cost the state $718 million in annual revenue moving forward.
The upcoming budget session in Frankfort is expected to be the most challenging of the past decade, due to economic uncertainty at the national level and a dramatic decrease in federal funding, as the stimulus spending of the pandemic era runs dry.
In September, the state’s Consensus Forecasting Group estimated a $305 million budget shortfall for the current fiscal year. Democratic Gov. Andy Beshear said this was due to new tariffs imposed by President Donald Trump and past cuts to Kentucky’s income tax rate, with his office stating that “the upcoming budget will be significantly more difficult than in the last several years.”
Stivers on Wednesday called into question whether that projected shortfall is accurate or even of great concern, saying an anomaly of large, one-time corporate declarations in July 2024 skewed the tax revenue year-over-year numbers for the first two months of the current fiscal year.
“If you take that anomaly out of (2024) we're pretty close to right on projections,” Stivers said. “If you take that out, we're less than one-tenth of 1% off of where we would have been.”
Stivers also noted that the state’s budget reserve trust fund will grow to nearly $4 billion by the end of the fiscal year and could easily plug in that projected hole.
“If there is a need to cover it, and the governor's office won't deal with it, with some minor adjustments, we have the money to cover it,” Stivers said.
Stivers and other Republican leaders regularly credit Kentucky’s economic success to the policies they’ve implemented since first winning a supermajority of both chambers in 2016, including their income tax cuts, restrained spending, growth of the budget reserve trust fund and stabilization of the public pension system.
Beshear is calling once again for the funding of universal pre-K, teacher raises and child care in the upcoming budget session.
