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VOL. 36 | NO. 3 | Friday, January 20, 2012




Nashville adviser shapes Kansas gov.'s tax plan

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TOPEKA, Kan. (AP) — Republican Gov. Sam Brownback's plan to overhaul Kansas' individual income tax system will help the poor by creating prosperity, according to a Nashville-based former economic adviser to President Ronald Reagan who helped shaped the proposed state policy.

Criticism that the plan would hurt the poor is based on a "static" analysis that doesn't consider how changing tax policy will create a more dynamic economy, attracting businesses and creating new jobs, economist and supply-side economics advocate Arthur Laffer told the Senate Assessment and Taxation Committee Thursday.

"It's not a class warfare issue. It's how you get to prosperity for everyone," Laffer said, adding that Brownback was "trying to do the right thing."

Laffer, a consultant to Brownback's administration, also planned to testify before the House tax committee.

His appearance came two days after the release of state Department of Revenue figures that showed the proposal would increase the total income tax burden for the state's poorest households. As a group, Kansans with adjusted gross incomes of $25,000 or less — about 41 percent of the state's nearly 1.4 million individual income tax filers — would be the only one to see their aggregate taxes rise, with the biggest cut collectively going to Kansans whose incomes exceed $250,000.

Kari Ann Rinker, state coordinator for the National Organization for Women, challenged Laffer to explain how eliminating the earned income tax credit for poor, single mothers would help them raise their families and improve their prospects.

"I think job creation with this plan is a big 'if,'" Rinker said.

Laffer said government can do more to help single mothers through investments in Medicaid and other safety net benefits that Brownback has proposed.

Though Brownback's administration has said any increase for the poorest group would be more than offset by social services spending, the figures have created potential political problems as the governor tries to sell his plan. At least one conservative Republican senator is working on an alternative income tax proposal, and House GOP leaders said they'd discuss tax issues during a news conference Friday.

Brownback's administration has quoted Laffer frequently, and it has a $75,000 consulting contract with the Nashville economist.

His visit Thursday was part of that contract that began in July 2011 and ended Jan. 10, the administration said. Laffer has received $50,000 on the contract, said revenue spokeswoman Jeannine Koranda.

As an adviser to Reagan in the 1980s, Laffer argued that lowering taxes would bring general prosperity that would actually increase government revenues. He's known for his "Laffer Curve," which represents the argument in graph form.

"Your poor, your minorities, your disenfranchised, the only way you're going to ever get them better off is by bringing jobs in," Laffer told reporters before speaking to the Senate committee. "A lot of people are using static analysis, saying by doing this you'll make the poor worse off. No, you're not."

Brownback's plan cuts individual income tax rates and exempts 191,000 operators of partnerships, sole proprietorships and other small businesses from any income taxes on their business earnings. To offset the potential loss of revenue to the state, the plan would eliminate tax credits and deductions and keep the state's sales tax at 6.3 percent instead of dropping it to 5.7 percent in July 2013 as scheduled.

According to the state Department of Revenue, as a group, the total tax burden on taxpayers with incomes of $25,000 or below would grow by $88 million, or an average of $156 for each. As a group, those filers actually get a net payment from the state of almost $2 million, so the percentage increase in their burden is calculated at more than 5,100 percent.

Critics call the plan "Robin Hood in reverse," but Laffer described it as "beautiful."

Sen. Tom Holland, ranking Democrat on the tax committee, said the United States has tried Laffer's economic theories already but that they didn't produce the promised growth or rise in prosperity.

"We've done this before. It hasn't worked. Why would it work here?" said Holland of Baldwin City.

Laffer also responded to questions about litigation brought by 52 plaintiffs in Texas claiming they were bilked out of $3.1 million in a fraudulent investment.

The lawsuit said Laffer lent his name to an investment fund that was seeking to raise money to purchase radio stations in Texas. The plaintiffs, who filed Tuesday to drop the suit, claimed the investment amounted to a Ponzi scheme and that they never saw a return on their investment.

Laffer said he was never served court papers in the matter and that he's been sued many times in his life.

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