Above: Arthur Laffer, the former Reagan Administration economist who advised Gov. Sam Brownback on his tax plan, testifies before the Kansas House Tax committee at the statehouse, Thursday, Jan. 19, 2012 in Topeka, Kan. Thad Allton AP
Last fall, a group of five wealthy men from out-of-state dumped at least $211,500 into Republican efforts to take over the Kentucky House of Representatives for the first time since 1921.
They live from Miami to New York, but have one common bond: Arthur Laffer, a prominent conservative economist who served in the Reagan administration.
They also share a similar goal: reshaping how Kentuckians pay taxes.
“I think now’s a good time for any state like Kentucky to look at their tax structure and say ‘how can we modernize?’” said Travis H. Brown, a Missouri lobbyist who donated $23,000 to GOP House members, more than any other individual.
They picked a winning horse, pumping $105,000 of their money directly to winning candidates and another $59,500 to state GOP committees that gave more than $1.8 million to successful GOP House candidates.
Republicans claimed a super majority in the House and quickly pledged support for Gov. Matt Bevin’s promise to call a special law-making session later this year to transition Kentucky’s tax system from one based on production (income taxes) to one based on consumption (sales taxes).
That economic philosophy was, in many ways, coined by Laffer. His message of lowering income taxes and reducing business taxes has been embraced by scores of Republican politicians across the country.
Though Laffer and his associates may feel the time is right for business-friendly tax reform in Kentucky, there’s a roadblock — massively underfunded pension systems for state workers and teachers.
Last November, financial projections showed Kentucky’s state pension systems had an unfunded liability of $32.5 billion, with the main pension system for state employees only 16 percent funded (anything below 80 percent is considered underfunded). Now, Bevin claims that number is grossly miscalculated, suggesting the state’s real pension debt is closer to $82 billion.
To meet that challenge, Bevin warned in his State of the Commonwealth Address last month that any changes to Kentucky’s tax code will have to raise revenue, not reduce it.
“This is not going to be a revenue neutral tax plan,” Bevin said in the speech. “It’s not. We can’t afford for it to be, that’s a straight up fact. We cannot pay off eight times what we bring in if we simply reshuffle the deck.”
Brown, though, says Kentucky can still raise revenue without raising taxes, arguing that the state can even cut taxes if it’s on the right side of the “Laffer Curve,” an economic concept that says a higher tax rate doesn’t necessarily mean more government revenue.
“What percent of your state government is not efficient as it should be?” Brown asked. “What voters typically believe is they know how to spend their money better than the government knows how to spend their money.”
Regardless of how lawmakers in Frankfort decide to rewrite the tax code, Laffer and his associates clearly thought Kentucky was ripe for an influx of conservative philosophy.
“It just looked like the time and place where it was to come,” Brown said.
Here’s a closer look at the five men, of which only Brown responded to Herald-Leader requests for interviews.