The increasingly popular claim that Utah's high taxes are stifling economic development may sound reasonable, but it is more myth than reality, according to a national expert on economics and public administration.
"It's absurd to claim a large company can't afford to pay a few thousand dollars more to cover the added tax burden of their key employees," said Dick Netzer, a professor of New York University.Netzer told state lawmakers from Utah and around the nation that on-going studies indicate state tax rates play little, if any, role in the state's competitiveness in attracting new business.
"I've always felt that taxes, reasonable taxes, didn't affect whether a business located in Utah or not," said House Majority Whip Olene Walker, R-Salt Lake. "Our marketable resources, like our educated work force, are the important factor in those decisions. Taxes aren't."
Walker is one of about two dozen Utah lawmakers in Reno to attend the 14th annual National Conference of State Legislators. About 7,000 lawmakers from all 50 states, several provinces, and three foreign countries are at the conference, where economic development and taxation are among the hottest topics.
According to Netzer, a state's tax structure has a subtle, complex effect on economic development.
"But those effects aren't as large as business leaders have maintained all along," he said.
When asked if a state with a corporate tax rate of 7 percent has an advantage over a neighboring state with an 8-percent rate, Netzer said, "I wouldn't bet my life on it."
Netzer's report was a slap in the face to many states that have "given away the store" by offering overly generous tax incentives to new businesses. But the report was reassuring to Utah lawmakers who have shied away from lucrative incentives in favor of promoting the state's "environmental advantages."
"Our No. 1 liability is not taxes," said Walker. "It's the fact we are so far from major markets. Our No. 1 asset is our educated work force."
Rep. Haze Hunter, R-Cedar City, agrees.
"Utah has to focus on its environmental aspects - the productive workers, the real abundance of highly educated workers, the quality of life in Utah. We just can't afford to offer the tax incentives other states are offering."
While Utah may never compete with cash-rich costal states for economic development, the state is doing an exceptional job of capitalizing on its unique advantages, Hunter said. In fact, Utah has been more successful in economic development than any other Mountain West state, he said.
Economic development is an issue of economic survival to every state, and Netzer reminded lawmakers there are certain tax factors that will affect the economic future. While income, corporate and property taxes have little impact on economic development, taxes aimed at specific industries or businesses can have a chilling effect.
"It's a terrible idea to impose sales taxes on a manufacturer's purchase of machinery and equipment," Netzer said.
But on the other side of the spectrum, many states often sacrifice future tax bases by exempting companies from some taxes for 20 years or more if they will relocate.
There are opportunities for most states to improve their business climates by reforming tax structures. "But don't expect miracles. To get a big bang requires a lot of bucks," Netzer said.
"We're pushing hard, but we can't compete head-to-head with states like California," said Hunter. "They are spending beaucoup bucks. We're never going to compete with them for the big plants, but we can attract those companies with 200 to 300 employees. We are doing a good job of that now, and if we get enough of those, Utah will be in good shape financially."
The nation's lawmakers were also warned against "putting all your eggs in the tourism basket." Tourism results in service jobs with no economic spinoffs, and states that rely solely on tourism are headed for economic disaster, the lawmakers were told.
Tourism economies must be supplemented by manufacturing.