Legislators are rightly touting Utah’s strong economy and budget surpluses.
Some are promising a tax cut to sweeten their tax reform proposals, although Utah’s tax burden is now below average. The public generally likes tax cuts, so politicians risk nothing by proposing them.
However, tax cuts involve risks because they may make necessary investments unaffordable.
The urge to cut taxes rather than invest in Utah’s future resembles the fateful policy that destroyed Montgomery-Ward, a formerly large and successful retail company. After World War II, despite good cash reserves, its leaders failed to open new stores, fix old ones or improve its popular catalog business. It gradually shrank and finally ceased operations in 2001.
In contrast, many startups plow all their profits back into their companies for years and do well. Take Qualtrics and Adobe for example.
So, what are Utah’s best investment opportunities to avoid a Montgomery-Ward scenario?
Unlike our first-rate economy, the achievements of our public school students are clearly mediocre. One result is that many Utah firms are having trouble finding enough qualified job applicants.
One of the reasons prosperous, high-tech Finland is always at the top of international testing of students is that it pays its teachers like we pay doctors and lawyers, so its teachers are generally excellent.
But our public schools have a significant teacher shortage that has forced several Wasatch Front school districts into a teacher-salary bidding war to attract enough teachers to staff their schools.
The astonishing thing is that this year, we had a significant budget surplus in our education fund from state income tax, which some legislators inexplicably labeled as a problem rather than an obvious investment opportunity. This seems like a no-brainer, not a reason to cut income taxes that fund education. Our per-pupil investment is already the lowest in the U.S.
What else could use investment?
Early childhood education
Another obvious investment opportunity is early childhood education. Research shows that investment there pays off handsomely, something like $5-7 for every dollar spent.
To illustrate this, in 2013, the Sorenson Impact Center at the University of Utah convinced Goldman-Sachs to invest in the “Utah High-Quality Pre-school Program,” which eventually saved Salt Lake City much of what it ordinarily would have spent on therapy, incarceration, and social disruption. Goldman-Sachs split the savings and made good money.
Prison inmate therapy
Another investment opportunity is prison inmate therapy. Each Utah prisoner costs about $30,000 a year. Texas has invested in treatment programs which have helped slow the explosive growth of its prison population and reducing recidivism.
The Utah Foundation reports that investments in drug rehabilitation for offenders can yield significant savings to taxpayers in the long run. Furthermore, 40% of state prison inmates suffer from mental illness and could greatly benefit from medical interventions or psychological counseling, which is now in short supply, especially in our county jails.
For years, our Legislature has passed up significant federal funding and insisted that we could not afford full Medicare coverage as most other states do under the Affordable Care Act. Fortunately, this issue may be moot if — as expected — the federal government turns down Utah’s latest and initially more expensive proposal to substitute reduced coverage.
It is hard to understand why Utah, with one of the top-performing economies in the nation, could not afford to provide medical care to everyone who needs it. Patients without good health insurance delay care, end up sicker in the ER and we all end up paying for it.
Failure to provide affordable health insurance is not only hard-hearted but soft-headed. Sick people do not build the economy; healthy people do.
Adding more lanes to freeways costs $2-10 million per lane-mile. And it is endless unless we fund more public transport, which is less expensive in the long run and reduces pollution. It has become popular along the Wasatch Front, successfully reducing congestion. One-fourth of commuters into downtown SLC arrive there by public transport.
Are our taxes in need of cutting? No, and it would be harmful to our future. Compared to other states, Utah’s total tax burden is a bit below average and has fallen lately. Our property tax is the 11th lightest in the U.S. Nationally, our tax burden is the 6th lightest among developed countries.
The wealthiest and most productive countries in Europe like Denmark and Sweden have the highest taxes and invest more in their people. The poorest, least-developed, like Bulgaria and Romania, have the lowest taxes and civic investment.
So the question is tax cut or investment? Should we follow the investment pattern of Montgomery-Ward or Adobe? Let’s think smarter and invest in our future.