Gov. Laura Kelly has created a task force to examine Kansas tax policy and determine if there is a fairer, more balanced way to tax Kansans. One idea that has been floated is to tax businesses and the wealthy at a higher rate. Some people have called this concept socialism; it is not. Taxing these entities at a higher rate is an aspect of demand-side economics. Demand-side economic policies guided America from the Great Depression to 1980, when President Ronald Reagan embraced supply-side economics.
Each of these two economic theories favors a sector of the economy. Supply-side economics advocates for the business sector. Demand–side advocates for the consumer, recognizing the largest portion thereof is the middle class. Demand-side is counter-point to supply-side economics.
Supply-side believes the money flow should start in the business sector and trickle down to the consumer. Demand-side believes the money flow should start with the consumer and flow to business through demand for their good or service.
Supply-side believes fiscal policy, tax cuts, exemptions, subsidies, etc., should be given to the business sector. Demand-side believes fiscal policy should benefit the consumer.
Supply-side believes business is best suited to provide goods and services through control of production inputs, material and labor. Demand-side believes a strong consumer base will guide the creation and distribution of goods and services through consumer demand for them.
Supply-side advocates for debt. If it’s production input, labor, is in debt, there is a greater incentive to work. Debt also requires servicing; therefor it is profitable. Demand-side advocates for savings. Cash should be paid for goods and services whenever possible. Money paid to service debt is considered money lost.
Supply-side advocates for smaller government. If a business can profit by providing the good or service, government should shrink to allow business to do so. This concept is called privatization. Demand-side believes the government is the people. The buildings the government operates out of are not the government's, but the people's. Buildings were not built plain and simple but large and grand to reflect what the people as a whole can accomplish. It was under these policies that the interstate highway system, hydroelectric dams, national parks and other amenities were built for the benefit of the people.
Demand-side also recognizes nothing is free. To pay for the building of America, Americans paid higher taxes. From those that had more to give, more was expected. Businesses and the wealthy paid a higher tax rate than the average consumer.
Supply-side argues lower taxes are necessary for business to innovate and grow. Demand-side argues business has no inherent right to survive. A business survives through demand for its good or service. Subsidies and tax breaks, i.e. free money, lead to inefficiency.
Supply-side economics was given a chance to prove itself during the administration of Gov. Sam Brownback. Pro-business legislators cut business taxes with the promise of higher-paying jobs and increased government revenue. The promises never materialized, and the state’s deficits started to rise. Instead of reinstating the full business tax to increase revenue, a higher tax was imposed on the consumer. Many consumers find this unfair, but it is the essence of supply-side economics.
When people call for higher taxes on business and the wealthy, do not call it socialism. Name it for what it is, demand-side economics. The economic policies that built America and its once thriving middle class.
Clarence Hinchy is the founder of The Hinchy Institute for Public Policy. He can be reached at firstname.lastname@example.org.