Utah is Laughing

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 $4965 per capita in state and local taxes and per capita state income is $43338. (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.

Jon Coupal is President of the Howard Jarvis Taxpayers Association — California’s largest taxpayer organization — which is dedicated to the protection of Proposition 13 and promoting taxpayers’ rights.