Last month I was invited to address a joint tax committee of the
Utah Legislature to discuss the relative strengths and weaknesses of
various methods of taxing real property. Specifically, Utah is
considering adopting an "acquisition value" based system — such as
Proposition 13 — to replace its traditional "current value" system
that taxes property based on what it is worth now rather than the
purchase price.
Although the legislators had lots of questions, I was amazed at
their level of knowledge, their business acumen and their concern
for taxpayers. More than that, they were unfailingly polite and none
of them tried to set me up for a "gotcha" moment.
Having testified before the Utah Legislature once before several
years ago — and having a similar enjoyable experience — I thanked
the committee’s co-chairs for the invitation and noted that the
experience was different from some of my appearances before the
California Legislature.
At the mention of the California Legislature, several members of the
committee laughed. The Chairman grinned and said that "we love the
California Legislature — they do more for Utah business development
than anyone else."
The message was clear. Utah’s healthy business climate was due in no
small measure to California firms moving to that state or simply
choosing to expand their existing business operations there and not
in California. There are a lot of reasons why, compared to
California, Utah is so attractive.
First, California is a high tax state while Utah’s tax burden is
much more moderate. According to the Tax Foundation, California’s
state-local tax burden percentage stands at 12th highest nationally,
estimated at 11.5% of income. This is above the national average of
11.0%. Californians pay $4,965 per capita in state and local taxes,
and per capita state income is $43,338. (Unfortunately, California’s
poor ranking is probably understated because of the high number of
non-workers, such as children and the elderly. When tax burden is
spread among the employed — a methodology employed by CalTax — it
is even higher).
However, for a small business entrepreneur, the differences can be
more stark. California has the highest personal income tax rate in
the nation. Utah’s top tax rate is about half of California’s top
rate. And in overall business tax climate, the two states are at the
opposite ends of the spectrum with Utah ranked 17th and California a
dismal 47th.
Second, businesses appreciate government that is run well. According
to the Pew Center on the States, Utah ranks number one in several
categories and has earned a solid A grade: "Utah has been a clear
leader in sound government based on smart planning and effective
performance management that emphasizes long-term results."
California, on the other hand, has a D+ for fiscal management as
measured by such criteria as fiscal budget process, structural
balance and financial controls. According to Pew, the outlook for
the Golden State is grim: "California faces fiscal problems that
budget writers in most states would find difficult to grasp, let
alone solve."
While California wallows in debt, Utah had a $1 billion surplus last
year. Did they follow California’s lead and spend that money on new
permanent programs or higher employee salaries? Of course not. They
spent that surplus on infrastructure — new roads, highways and
other public improvements. And they did it without debt — on a
pay-as-you-go basis like California did back in the ’60s.
Perhaps most important is the positive mindset that Utah has toward
both individual and business taxpayers. Elected leaders understand
that, without taxpayers, there is no way to finance government.
Instead of viewing taxpayers as sheep to be sheared, intelligent
public leaders do all they can to attract and retain the best and
the brightest — whether a new family just starting out or a
multinational corporation.
But in these dark economic times in California, what does the
tax-and-spend leadership in Sacramento want to do? Raise taxes
$9 billion. Such a strategy is sheer madness.
Don’t be surprised if the Utah Economic Development Corporation
sends Speaker Bass and Pro Tem Perata a nice thank you card.