Granting tax incentives to businesses is a two-edged sword that may foster economic development and job growth while placing an increased tax burden on the average citizen. Politicians must strike the right balance between providing adequate incentives to keep Utah competitive in attracting new industry without giving away the farm. It's a delicate line to walk.
Attempting to do so, Gov. Mike Leavitt announced $21 million in tax-saving proposals for businesses last week. The breaks are merited because they have broad-based application for large and small firms and do not single out specific companies for special favors.The governor recommended a $5.6 million sales-tax exemption on manufacturing equipment, a $6 million exemption on pollution-control equipment, $8 million in new funds for job training and business development, $2.8 million in training for businesses and $1.5 million in child-care funding to assist low-income parents who need to work or receive job training.
Individually, these are not huge sums of money from the state's revenue pool. But, collectively with other tax breaks, they add up. They come at a time when Utah is tightening its fiscal belt as its economy experiences a dramatic slowdown, which may enhance their benefit.
Leavitt's proposal to increase the sales-tax exemption on manufacturing equipment from 80 percent to 100 percent initially appears unnecessary and trivial. While it is not a budget breaker either way, it keeps Utah on a level playing field when it comes to attracting new industry. Most states nationwide have or are moving toward a similar policy.
Though this state's economy is still relatively robust, it has slowed considerably of late and could benefit from a small shot in the arm that Leavitt's proposals provide. The tax exemption for new equipment benefits both large and small companies, along with new and existing Utah businesses.
Most important, inputs into the production process should not be taxed. If tax adjustments or increased budget revenue is needed, the governor and Legislature should consider raising a broader-based tax on the output side of business, such as the corporate income tax.
The governor and Utah's legislators need to continually ensure that sales-tax exemptions don't tilt too far in favor of business at an inequitable cost to smaller taxpayers. Utah's business climate is sound without going overboard in proffering breaks and incentives. State leaders need to guard against giving away too much while placing an inordinate burden on residents already taxed at hefty levels. Leavitt's proposed $21 million savings plan is a positive step, but similar future breaks for business should be carefully scrutinized.