Missouri workers can’t afford what eliminating the income tax would cost | Opinion

Missouri Amendment 5 — which goes before voters in August — would drop state income taxes but will result in higher sales taxes. It would extend the sales tax to services such as child care and medical care. It is based on an outmoded idea called supply-side economics, which claims that lowering income taxes on businesses and the wealthy motivates more them to hire more employees to work longer hours.

This assumes that demand will automatically match the increase in supply. This worked somewhat correctly after World War II. During that war, the production of consumer goods was suppressed to allow for the production of war products. There was a pent-up demand for consumer goods. Returning war veterans benefited from money provided by the GI Bill and created the baby boom, with young families generating lots of demand for goods and services.

But that world is no longer our reality today. Automation has replaced workers with machines, and union members went from 35% of the workforce to less than 10% today. More money flows to Wall Street investors and less money to front-line workers and middle class Americans.

The result is a distorted money flow with passive investors getting most of the money generated in our economy. Switching from an income tax based on the ability to pay to an increased and expanded sales tax, which is not based on the ability to pay, would not help this situation. Most passive investors just reinvest any additional money they save, or bid up the price of exclusive properties or Picasso paintings — which will not bring Picasso back to life to produce more paintings. Supply-side economics no longer works.

Most of those young big-spending baby boomers are now retired and living on fixed incomes. The income tax on Social Security benefits in Missouri was already dropped on Jan. 1, 2024. An increase in sales tax would just force residents to cut their expenditures. Young immigrant families seeking jobs are being turned away at the border. Supplying more labor doesn’t work if there is little or no increased demand for their products.

Since the late 1970s, compensation has not kept up with the growth of output per worker. Employees are no longer paid the value of the goods and services that they produce. Instead, many of them borrow money and go deep into debt. Even then, they cannot afford to buy all that could be produced if they were paid more.

But automation has enabled businesses to increase supply without hiring additional workers or increasing the paid hours of the existing labor force. This has caused supply-side economics to fail. Driving workers deeper into debt does not increase demand enough to counter the impact of automation in cutting work hours. The economic pie cannot increase much if demand is unable to increase enough to absorb the additional supply. Daniel Alpert explains this development in his book “The Age of Oversupply.”

Replacing Missouri’s income taxes with higher sales taxes is a bad idea, and would only make this problem of imbalance worse. Vote no on Amendment 5.

Lawrence C. Marsh of Kansas City taught at Avila University, the University of Notre Dame and the University of Chicago. He is a former Kansas City Star Midwest Voices guest opinion contributor and published 81 of those columns in his book “Brain on Fire” in 2011.