Kansas Supply-Side Economics

Governor Sam Brownback, a Republican governor from Kansas, enacted wide scale tax reform, bringing taxes on small businesses down to zero. Furthermore, the tax rate on the highest income bracket went down about 25 percent. Brownback’s assumption, was that if Kansas was home to the lowest taxes in the midwest, then businesses would be incentivized to relocate to Kansas, and businesses within Kansas, with the extra revenue that they traditionally gave to the state, would be able to hire and expand. Supply-side economics typically argues that economic growth can be most effectively created by investing in capital and by lowering barriers on the production of goods and services. The lower the tax rates, the more consumers would supposedly benefit …show more content…
Essential for supply-side policy to work, at least economically, is that there is increased investment spending and consumer spending in industry, to offset the inevitable decrease in government spending as a result of decreased tax revenue. Another assumption, is that when small businesses have more of their own money, that they would traditionally pay out in taxes, that they actually invest in new machinery and new employees, because that is where output supposedly will increase. Initially, the Kansas experimented with supply-side economics seemingly worked, a small-business owner of a computer retailer purchased iPads with the tax break, to …show more content…
That the lower-tax rate encourages capital investment within state borders, thus growing the private sector, while shrinking the public sector. The issue is, it rests on the assumption that investment will always lead to swift employment. As seen in Kansas, this is not always the case, and if economic isn’t swift, then there is seemingly a ripple effect, where the state takes in less-revenue and can spend less, thus shrinking aggregate expenditures, and overall output as a result. If consumer and investment spending does not increase to the same rate or greater, then the rate that government spending is decreasing at, economic growth will shrink. Moreover, this is not even delving into the societal repercussions of decreasing government spending - if the government can’t afford to fix highways, roads and bridges get damaged, if infrastructure is poor, business struggles as a result with no private alternative to providing these services. Furthermore, even in a successful supply-side experiment, if regulations are slashed to the bone, then this could lead to increased pollutants in the waterways, poor air quality and other environmental hazards that come with deregulated production of goods. Thus, the supply-side model rests on various assumptions, that don’t always play out, and disregard the societal/environmental consequences of shrinking governmental