Norquist and other conservatives face an unexpected hurdle from GOP Gov. Bill Haslam. | AP Photos Norquist, Kochs vs. Tennessee GOP

Grover Norquist and the Koch brothers’ advocacy machine are taking on Tennessee Republicans — including the governor himself.

Their sin? Opposing a bill to repeal investment taxes.


The no-tax preachers at Norquist’s Americans for Tax Reform and Americans for Prosperity are pushing hard against the unexpected roadblock of GOP Gov. Bill Haslam and a small group of Republicans who say now is not the time to go cutting taxes.

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The intraparty skirmish is about to get ugly, with the Washington heavyweights gearing up to put their substantial resources and national policy clout to work ahead of a pivotal vote next week.

“If by some chance we don’t get this passed, we will take this to districts,” said Andrew Ogles, the state director for Americans for Prosperity, founded in part by industrialists Charles and David Koch. That includes TV and radio buys, he added. “We’ll campaign on this across the state and get people involved.”

Recalcitrant Republican legislators may even be primaried by repeal backers if they stand in the way, one conservative source working on the issue said.

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The predicament puts Haslam and his GOP backers in a sticky situation: Let the bill advance, or defy national conservatives who could make their lives miserable?

GOP campaign strategist Ed Rollins said the national groups could cause serious harm to state Republicans by “confusing the message” — and make the GOP look bad for divisions in an election year.

“These little wars can be detrimental,” he said. “You go out and beat each other up, it turns voters away from even your winners.”

Haslam, who is up for reelection this year but does not have serious challengers, says Tennessee doesn’t have the money for tax cuts. And several state Senate Republicans unexpectedly moved this past week to block the bill from advancing, blindsiding repeal supporters who thought they had passage in the bag.

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“Philosophically, I would love to do [it]; realistically, you all know our revenue is down this year,” Haslam told reporters at a news conference.

In a recent interview with POLITICO, Haslam waived off outside pressure, saying it makes no sense for groups like ATR to push Tennessee on tax issues.

“Tennessee is one of the three or four lowest [tax] states, so I certainly don’t feel like we need to apologize for our tax rates,” he said. “They have to like us because we’re a no-income tax state … which is where most other Republican governors would love to be.”

It is a scenario playing out in pockets across the country as states generate more revenue than they’ve had in years, and Republicans face pressure to cut taxes at any cost. Republicans recently balked at an effort by some moderates in their party in Wisconsin to limit tax cuts there, but GOP Gov. Scott Walker pushed through a $500 million tax cut package.

In New Jersey, Norquist’s group recently put pressure on GOP Gov. Chris Christie to drop a proposal to tax out-of-state Internet purchases.

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Although many states are awash in cash amid an improving national economy, Tennessee’s revenue collections were $260 million below estimates in the first half of fiscal 2014.

Tennessee is often called a no-income-tax state, but it levies a 6 percent tax on investment income like capital gains on stocks and dividends.

Volunteer State Republicans, who control both chambers, for years have tried to cut the levy but have yet to rally the entire party behind one bill.

Enter Norquist and Americans for Prosperity.

At a half-day “workshop” sponsored by the conservative Nashville-based Beacon Center last month, Tennessee state Sen. Mark Green (R) and state Rep. Charles Sargent (R), who would become the sponsors of the new bill, met with staff from ATR and the Tax Foundation, another right-leaning group headquartered in Washington, to hash out legislation.

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“We knew we had no shot if there were a bunch of different bills,” said ATR’s director of state affairs Patrick Gleason, who attended the meeting. “We needed to get everyone behind one, compromise bill.”

They left the meeting agreeing on new legislation to phase out the tax by 1 percent each year rather than repealing it immediately, a sort of olive branch to offer Haslam.

Norquist and AFP President Tim Phillips followed up with a press conference at the state capitol earlier this month, where they endorsed the bill and lobbied members.

But not all Tennessee Republicans got the message.

In a finance subcommittee hearing last Tuesday, just before the first vote on the legislation, state Sen. Doug Overbey (R) offered a motion to refer the bill to a “summer study.”

“Summer study” in the Tennessee Legislature is often the place bills go to die quietly.

POLITICO learned that Senate Republican leaders at a caucus meeting that morning urged members to practice “self-restraint” when considering bills that could affect the budget.

“I’m not trying to delay, throw-up roadblocks or kill the bill … but to try to be a responsible member of the … committee at a time when we are facing a difficult budget year,” Overbey said.

With Democratic backing and one Republican, Overbey was able to stop the legislation temporarily on a 4-3 vote, leaving Green, a freshman, in confusion, asking the chairman if this meant his bill was toast for the rest of the year.

Overbey last year butted heads with Norquist, whose group sponsored a letter campaign that successfully shut down the lawmaker’s bid to tax travel agents.

In a phone interview he said he didn’t see the harm in giving the Green-Sargent proposal a “good long, hard look … so we can see it from all angles” and that he’s not necessarily opposed to the proposal.

The Tuesday vote sent the two conservative groups into a frenzy, calling panel Republicans to urge them to switch their votes at a full committee hearing likely to happen early next week.

If they don’t, the bill is dead for a few months at least — though the House could advance its version of the bill next week.

AFP is also producing last-minute TV and radio advertisements in hopes of reversing course next week.

“Everything’s on the table,” Ogles said when asked about their strategy for the next few days.

Meanwhile, Democrats dismiss the groups as interlopers “stirring the pot” — though Ogles was born and raised in Tennessee and oversees thousands of AFP members there.

“I certainly don’t think the people of Tennessee would like people they didn’t elect, who don’t even live and vote here, coming in and trying to influence what we do with our budget,” said House Democratic Leader Craig Fitzhugh, who added that he’s all for tax cuts when the state has extra money.

Even if the groups are successful in getting both chambers to pass the legislation, they’ll still have to go through the governor.

Norquist defended their involvement, arguing he’s just looking out for the state’s best interest: “Sometimes an outside group can help to build consensus.”

He said he “can’t imagine” the governor would continue to oppose the bill if it passes both chambers.

Haslam said the proposal would leave another multimillion-dollar hole in the state’s budget.

Atop that, the governor expressed worry that repeal could force localities to hike property taxes since counties and cities actually receive more than a third of those tax collections for local services.

Green, Sargent, and the outside groups argue that the legislation addresses Haslam’s concerns because it would allow the 1 percent, annual drawdown to go into effect only if yearly revenue growth meets a certain threshold.

It would also keep communities “whole” so they don’t see their revenues sliced immediately.

“That way we keep [localities] out of the discussion, in a way … so they’re not lobbying against it,” Green said.

Should the bill die this session, repeal supporters plan to try again in the next legislative session with more money at their back.

“Ideally, everyone realizes it’s just good policy. … But if that’s not the case, we’re prepared to deploy resources to advance this effort,” Gleason said.

Overbey said he isn’t particularly worried, even if it means he finds himself facing-off with an outside-backed primary challenger.

“We are not as influenced by outside side groups as people might think… We’re independent thinkers,” he said.

But ATR’s Ogles said it’s really only a matter of time before the tax disappears — and the outside groups will do all they can to make sure that happens.

“This doesn’t end next week,” Ogles said.