Not surprisingly, an economist from the Utah Education Association told the interim Revenue and Taxation Committee any reform of the tax code should emphasize education spending. Companies are more likely to relocate to states that spend heavily on roads and education, the UEA maintains.
Income tax is constitutionally earmarked for education spending, but that and everything else in the tax code is up for grabs this year as the Legislature contemplates a top-to-bottom restructuring.
Richard Sims, an economic consultant, told lawmakers labor costs account for about 48 percent of an industry's expenditures, whereas state income tax is only 0.25 percent.
"[An industry] is not going to focus first and foremost on income tax," Sims said. "Businesses don't make relocation decisions based on small numbers like that."
Sims acknowledged eliminating Utah's corporate income tax, which brings in about $135 million annually, would stimulate the economy, creating about 2,200 jobs over five years.
But "investing" the same money on education would immediately create 5,900 jobs just through the hiring of personnel for new school programs and buying more school supplies. The entire community then benefits.
Being seen as a "tax-friendly" state does not always correlate with economic development. Some of the states that are the least tax friendly are growing the fastest, probably because they use the money for education and highways, Sims said.
Rather than eliminating corporate taxes, Sims suggested, simplify them. "You can have taxes that are not barriers to growth."
As for the sales tax, Sims said that as a general rule, the tax base should be as broad as possible, including taxing services as well as products. "Basically tax everything you can a little, so you don't tax anything a lot."
Sen. Curt Bramble, Senate chairman of the Tax Reform Task Force, asked if Sims recommended taxing medical services.
In the spirit of broadening the sales tax base, Sims said he would, but added, "Politically, medical services is one of the hardest areas to approach. I would not make it a priority."
