In their recent commentary for The Salt Lake Tribune (“Utah shouldn’t allow neighbors to outdo it on tax cuts”), Jared Walczak and Rusty Cannon argued for a tax rate cut. state income tax once again based on the reasoning that otherwise Utah will lose job growth to other states (even though the Walczak Tax Foundation already ranks the Utah in top 10 states for business-friendly tax structure).
Wealthy corporate advocates have pitted states against each other almost forever, and it is certainly in their interest to do so. But it is in every state’s interest to fend off that competition, at least if it is in a strong enough economic position to do so.
Is Utah in a strong enough economic position to fend off competition from tax cuts, 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 fastest growing in the country, and many young Utahns 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 wages – we really were a low-wage state.
But in recent decades, Utah’s economy has shifted into a new gear. Our tech sector has taken off, producing thousands of highly skilled, well-paying jobs. By 2020, Utah’s median hourly wage had risen to 29th in the nation, meaning that in less than a generation, we’ve gone from a low-wage state to a middle-wage state.
This is impressive progress. Indeed, state economic development leaders can argue that the billions in tax cuts that have taken place over the past few decades have helped put us on the national map and helped them sell Utah to coastal companies (like Goldman Sachs and Adobe) considering where to expand next.
But the economy is constantly changing and our way of thinking must change with it. Utah’s success in earning middle-earner 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 have become high-wage states (and managed to do so without becoming high-wage states). the cost of living is high)?
Voices for Utah Children has published detailed studies comparing Utah to these two states (among others), and we’ve identified one main factor that explains how they did: education.
Colorado and Minnesota both rank in the top 10 states for graduate level – the percentage of the population ages 25 and older with a bachelor’s degree and above. And Utah isn’t 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 those 65 and older, Utah ranks 12th. But among 45-64 year olds, our rank drops to 14th. Among those aged 35 to 44, it drops further to 20th place, although it is still above the national average. But among Millennials, ages 25-34, not only does Utah’s ranking drop all the way to 26th, but our 35% bachelor’s degree holders put us behind the national average of 37%. In contrast, among this youngest post-college cohort, Colorado ranks 4th at 44% and Minnesota ranks 7th at 43%.
Reversing this trend and regaining our national lead in higher education achievement must be a central part of Utah’s economic development strategy going forward. But we won’t get there by cutting taxes; we’re going to get there by investing more in the younger generation at every stage of the pipeline, from kindergarten to high school to college and beyond.
So back to the competition for tax cuts: is Utah’s economy now strong and resilient enough that we can begin to move away from growing our economy based on ever lower taxes and move to a future of growth based on ever higher skills? of our workforce?
Reasonable people may differ as to whether and when Utah has reached the point where we are in a strong enough position to say no to competing tax cuts. But clearly there is a point somewhere on this spectrum where any competitive advantage potentially gained by lowering taxes is offset by the reality that lowering taxes is the fiscal equivalent of eating our seed corn.
Matthew Weinstein is Director of Tax Policy at Voices for Utah Children