Politics & Government

Where’s the tax reform? The noted economist who helped flip Kentucky House is frustrated

Economist Arthur Laffer says Kentucky's tax system has three failings

Laffer rocketed to fame, and notoriety, with his Laffer Curve, which illustrates his premise that reducing tax rates can stimulate economic activity and generate additional tax revenue.
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Laffer rocketed to fame, and notoriety, with his Laffer Curve, which illustrates his premise that reducing tax rates can stimulate economic activity and generate additional tax revenue.

Last year, Arthur Laffer spent at least $32,500 supporting Republican candidates as they won control of the Kentucky House of Representatives for the first time since 1921.

So far, the famed economist is not satisfied with the results following his investment.

“Even though we flipped the House massively, I haven’t seen the movement yet,” Laffer said Thursday before speaking on a panel at the University of Kentucky. “But maybe I will next week.”

While Kentucky’s legislature has passed a slew of conservative reforms since the GOP won control of Frankfort, they have not yet addressed the issue where Laffer has earned his living — taxes.

“These people mean a lot to me and to see the tragedy of this government irritates and angers me enormously,” Laffer said.

Laffer rocketed to fame, and notoriety, with his Laffer Curve, which illustrates his premise that reducing tax rates can stimulate economic activity and generate additional tax revenue.

He has the ear of several prominent Republicans in the state.

Laffer said he has met with Gov. Matt Bevin as much as he did with Kansas Gov. Sam Brownback and Missouri Gov. Jay Nixon when their respective states passed tax reform — and House Speaker Jeff Hoover, R-Jamestown, represents the district where Laffer has a vacation home.

In his State of the Commonwealth Address in February, Bevin said the state would tackle the state’s ailing pension systems and overhaul its antiquated tax system at the same time. But as the political realities of tinkering with taxes loomed, Republicans in Frankfort have changed course, choosing to take on pensions first.

“I think the main thing is we completely changed Kentucky in a good way,” House Majority Leader Jonathan Shell, R-Lancaster, said Thursday. “Once we get done with pension reform, the last step will be tax reform.”

It’s that order that Laffer takes issue with.

“Tax reform should be done first, not last,” Laffer said. “It’s not a matter of liking the order, it’s not like you have your salad course first and then your dessert and then your main course. No, you can’t solve pensions without a good economy, so why would you take on pensions first?”

The state’s pension crisis provided the backdrop later in the evening as Laffer discussed tax reform with three Kentucky-based economic experts.

All of the experts on the panel said the state needs to address the tax code either before or while dealing with the pension crisis.

And all four panelists agreed the state should widen the base of people who are taxed. Three of the four panelists agreed that widening the base could be coupled with a decrease in the tax rate.

But whether that reform results in more immediate revenue — something the state desperately needs to address its pension — lies in the details of that balance.

And that, Shell said, is why the legislature split tax and pension reform into separate potential special legislative sessions.

“With pension reform it’s pretty cut and dry with what you have to do,” Shell said. “With tax reform, you could ask 100 different people what you should do and you’d get 100 different answers.”

Daniel Desrochers: 502-875-3793, @drdesrochers, @BGPolitics

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