Guest opinion: Helping students with tax increase won’t hurt economy

Recent arguments against raising income taxes to fund public education either indicate a misunderstanding of the measures or are an attempt to deflect the power of the proposal to help our children and grandchildren flourish in future years.

The first argument used is that the economy is growing fast enough that school budgets don’t need to continue at the same percentage of the economy.  This rationale reflects a misunderstanding of the statistic.  The chart below highlights the basic statistic of “public education effort”, that the amount of operating funds for Utah’s schools 20 years ago and today should stay equal if you are to expect similar results.  Technically, it means that if the State funds K-12 public education at the same percentage of the economy that it did in the mid-1990s, then it is making the same relative “effort”. 

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Since the economy increased, the State has the “ability to pay” more at the same percentage it did in the past.  If it pays less, the State’s effort is lower, and hence its priorities changed, in this case to fund transportation projects.  The near 1% lower spending effort (from 4.0% to 3.1%), means that our children’s schools had to economize by shorting teacher salaries, increasing class sizes and making other adjustments.  As CEO Mark Bouchard, from the CBRE real estate firm, so often exclaimed when he ran for the state school board, “It simply is not a good business model, to pay your people less and expect the same or better results.”

The second argument we have heard against returning the state’s income tax to its prior, real dollar level is that it would “hurt the economy”.  This argument assumes that higher taxes will come off the tables of the middle class and they will spend less on taxable sales items, slowing down the economy.  The economic facts are very different.

In this case the proposal to move $750 million from household and business budgets to fund high public education efforts means that 58 percent of the tax increase ($435 million) will be paid by the top 20 percent of households, who don’t spend every dollar on consumables like lower and middle income households do.  Plus, in this case almost every dollar increase to local public education will be reinvested within the state, as teachers and administrators purchase goods and services within Utah.

The claim that Utah’s economy will slow down is at odds with the facts.  When the income tax rate was lowered by ¾ of 1% in 2007-09, we already were the 2nd fastest growing state in the nation, just behind booming Nevada.  Now, depending on the month, we are in the top three job growing states, pretty much where we were before. So cutting the tax didn’t change our position as a top job growth state.

The reason is that the $750 million tax increase is only 0.6% of Utah’s $131 billion economy (in terms of personal income) in 2017.  No doubt a large amount of money, but not enough to wreck the Utah economy.

No one likes increasing tax rates, but in this case the question is whether our children and grandchildren’s futures are worth it.  Producing a vibrant, robust education system takes commitment over the long haul.  Slowly slimming down our public education 2% per year over the last 20-years, is now having its (-40%) effect of producing mediocre test scores and graduates not ready for college.  Utah needs to recommit to producing an education system, which is in the top tier in the nation, not one that is in the bottom third.  If we do, it will spur, not stifle, economic development in future years.

Doug Macdonald is chair of the Davis Alliance for Public Education and is a former chief economist, Utah State Tax Commission.