In their recent commentary for The Salt Lake Tribune (“Utah shouldn’t allow its neighbors to outcompete it on tax cuts”), Jared Walczak and Rusty Cannon made the case for cutting the state income tax rate yet again based on the rationale that otherwise Utah will lose job growth to other states (even though Walczak’s Tax Foundation already ranks Utah in the top 10 states for our business-friendly tax structure).
Advocates for wealthy corporate interests have been pitting states against each other pretty much forever, and certainly it is in their interest to do so. But it’s in the interest of individual states to push back against this competition, at least if they are in a strong enough economic position to do so.
Is Utah in a strong enough economic position to push back against the tax cut competition, or are we still so vulnerable that we have no choice in the matter?
A generation or two ago, Utah’s economy was not one of the hottest in the nation, and many young Utahns found they had to leave the state to get the jobs they wanted. In fact, as recently as 2004 Utah ranked 41st in the nation for our median hourly wage — we truly were a low-wage state.
But in recent decades Utah’s economy has moved into a new gear. Our tech sector has taken off, producing thousands of high-skill/high-wage jobs. By 2020, Utah’s median hourly wage had risen to 29th in the nation, meaning that, in less than a generation, we have gone from a low-wage state to a middle-wage state.
This is impressive progress. Indeed, state economic development leaders can make a case that the billions in tax cutting that took place in recent decades helped to put us on the map nationally and helped them to sell Utah to companies on the coasts (like Goldman Sachs and Adobe) considering where to expand next.
But the economy is always evolving, and our thinking must change with it. Utah’s success in achieving middle-wage status is already old news. Now the question on our minds should be: What will it take for Utah to become a high-wage state?
One way to approach this question is to ask: What can we learn from the experience of states like Colorado and Minnesota that became high wage states (and managed to do it without becoming high cost-of-living states)?
Voices for Utah Children has published detailed studies benchmarking Utah against both of those two states (among others), and we have identified one leading factor that explains how they did it: Education.
Colorado and Minnesota both rank in the top 10 states for higher education attainment – the percent of the population age 25+ with Bachelor’s degrees and above. And Utah does not rank too far behind – we’re #15. But our problem is that our younger generations are losing the lead that our older generations built up many years ago.
Among the 65+ demographic, Utah ranks #12. But among ages 45-64 our rank falls to 14th. Among ages 35-44 it falls further to #20, though still above the national average. But among millennials, age 25-34, not only does Utah’s rank fall all the way to #26, our 35% with bachelor’s degrees put us behind the national average of 37%. By contrast, among this youngest post-college cohort, Colorado ranks #4 at 44% and Minnesota ranks #7 at 43%.
Turning around this trend and regaining our lead over the nation in higher education attainment must be a central element of Utah’s economic development strategy going forward. But we aren’t going to get there by cutting taxes; we’re going to get there by investing more in the younger generation at every step in the pipeline, from pre-K to high school to college and beyond.
So, getting back to the tax cut competition: Is Utah’s economy now sufficiently strong and resilient that we can begin to transition away from growing our economy based on ever-lower taxes, and transition toward a future of growth based on the ever-higher skills of our workforce?
Reasonable people can differ about whether and when Utah has reached the point that we are in a strong enough position to say no to the tax cut competition. But it’s clear that there is a point somewhere on that spectrum where any competitive advantage potentially gained by tax cutting is outweighed by the reality that cutting taxes is the fiscal equivalent of eating our seed corn.
| Courtesy Photo Matthew Weinstein
Matthew Weinstein is fiscal policy director at Voices for Utah Children