Citing the state's "booming" economy's ability to keep state budgets funded, Kentucky Gov. Andy Beshear signed a bipartisan-backed bill to lower the state's income tax rate from 4% to 3.5% Thursday.
The move was celebrated by people like Justin Bottker, a junior at Northern Kentucky University who's working to put himself through college.
"I mean, I'm trying to work 25, 30 hours just so I can pay for tuition," Bottker said.
While he acknowledged the need to keep government services funded, Bottker said a little break on income tax would help people like him with the daily expenses of life.
"If I can, as a consumer, get as much money in my pocket that way I can squeak on by for school, the better I'm going to be," he said.
NKU Haile College of Business economist Janet Harrah warned policies like income tax cuts, or a potential elimination, would need to be balanced against the state of the economy to protect essential government services.
WATCH: WCPO talks to the experts on tax cuts
"What's made it possible is the economy, coming out of COVID, has been growing very rapidly," Harrah said.
Harrah said, apart from the 2020 pandemic-driven downturn, the U.S. hasn't had a recession in a significant amount of time. She said the market would likely correct soon.
"Given the business cycle hasn't died down, we're going to have a recession in the next two to five years," Harrah said.
That's been one of the factors leading the Kentucky Center for Economic Policy to issue a report urging the legislature to reconsider tax cuts.
Executive Director Jason Bailey said there are no mechanisms built into the legislature's bills to roll back tax cuts if the economy experiences a downturn and the budget faces a shortfall.
"The economy will not always be as strong as it is today," Bailey said.
The nonprofit think tank's report indicated the tax cuts could threaten funding to critical state programs like Medicaid, social services,and education funding.
Bailey said each half-point cut equaled a $718 million cut to the state's revenue.
He also saw no path forward toward the legislature's goal of eliminating income tax in Kentucky to fuel economic growth.
"It's not possible, and no one who's proposing this has explained how they're going to pay for it," Bailey said.
The latest .5% income tax reduction passed by the Kentucky Legislature and signed by Beshear will take effect Jan. 1, 2026.
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