Provo Daily Herald: an example of economic illiteracy
Economic illiteracy continues to plague policy debate in Utah as evidenced by a recent editorial in the Provo Daily Herald.
Last week, the Daily Herald sang the praises of Orem’s recreation and arts tax, claiming that increasing taxes to support arts and entertainment promotes economic growth. The following quote from the Herald editorial board is a perfect illustration of the economic illiteracy the Utah Taxpayers Association has been fighting against over the years.
“Cultural programs do more than just enrich lives. Many outsiders coming to a concert or a play will go out to dinner or go shopping while they're in town. Such activities bolster the economy and, fittingly, boost CARE tax revenues.”
The many “outsiders” that the Herald is talking about are not from New York City, Chicago, or Vienna. They are almost entirely from other communities within Utah. Raising taxes to subsidize entertainment and arts venue so that Utahns can spend money at these venues does not promote economic growth. This is just shuffling existing and future economic activity around within the local economy. As long as people have money in their pockets, locally-driven entertainment and recreation expenditures will occur even if government does not subsidize venues. People are not going to spend more money than they otherwise would just because government has created some entertainment and recreation venues.
If demand for recreation and entertainment venues increases, the private sector will respond by expanding capacity.
If the goal is to increase consumption, the Herald should be advocating tax cuts, which would give consumers more money to spend.
Too many mayors and city councilmembers equate subsidizing locally-driven retail, recreation, and entertainment with economic development. As a result, one Utah city offers subsidies to incentivize a retail, recreation, or entertainment development to locate in the city in order to divert locally-driven economic activity from neighboring cities, and the neighboring cities respond by doing the same thing.It's really not much different than desert tribes stealing camels from each other. At the end of the day, the number of camels in the desert isn't any greater than it otherwise would be. They've just been shuffled around.
What is real economic development?
Long-term economic growth is more dependent on production and increases in productivity than it is on consumption.
Once government establishes the basics for economic growth – rule of law, property rights, etc -- real economic development is driven by two factors: increasing business and worker productivity and exporting goods and services.
Productivity increases when output increases per unit of input. This is driven by investments in technology, education, machinery, telecommunications, transportation and other areas.
Export-oriented businesses such as IT, manufacturing, and natural resources pay high wages and import wealth into our state.
Fortunately, most state legislators understand this, but too many local government leaders and small town newspaper editors do not.
These are exactly the reasons I was laughing like mad when various states started legalizing gambling as a way to increase state revenues. Drunk on the image of Las Vegas as a town of easy jobs and easy money, they rushed to build casinos jam-packed with... locals. They failed to realize that Vegas was in the tourism business, not gaming, and that requires out-of-town visitors. It sounds like Orem is in the same boat as those hoodwinked states.
Posted by
Jesse Harris |
2:17 PM
Jesse,
Good point. Another example is the claim that Utah could take care of all of its education funding problems by implementing a state lottery. Of course, while proponents call a lottery a voluntary tax, it is also a very regressive tax.
Posted by
Utah Taxpayer |
7:16 PM
I don’t completely agree with what the Daily Herald claims. But I also can’t agree with your claim that local leaders don’t understand economic development, or the claim that there isn’t a need for the public sector to provide cultural and entertainment opportunities.
I agree entertainment and recreational elements of the economy are largely a zero-sum game. And there is definitely a shuffling effect within the local economy. However, many of these cultural and entertainment opportunities are not intended to generate more revenue, but they add to our overall quality of life (which is a factor in economic development…corporations definitely consider quality of life components in making location and relocation decisions). The market can’t drive all of these cultural activities, many of the best museums/art venues/concert halls/parks are public entities not private. There isn’t a profit to be made in all of these activities.
You are right the economic development goals of the state and municipal officials are largely different. But it isn’t because local leaders don’t understand economic development as you claim...it is probably due more to the incentives created by the revenue structure the state legislature has authorized for cities.
Posted by
Anonymous |
10:11 PM
Neil,
You are making a strawman argument. We never said that government had no role in providing recreation and entertainment. We were specifically arguing that the Herald is wrong in calling this economic development. You apparently agree on this.
The Orem CARE tax will be a major factor in attracting exactly ZERO out-of-state corporations to Orem. If companies expand or relocate to Orem, it will be because of the workforce, outdoor recreation opportunities, but not because of the CARE tax.
Based on our interactions with local government officials, we have to disagree on your other point about local government officials understanding real economic development. Most local government officials equate economic development with retail. There are exceptions, but they are few.
When we've lobbied the Legislature to remove the incentives that cities have to take retail from each other (specifically, the sales tax revenue distribution formula), the cities have responded with a loud and unified "Hell no".
Posted by
Utah Taxpayer |
10:29 PM
Neil,
When we argued that the private sector will respond to increased demand for recreation and entertainment, that should not be understood as meaning that government has no role in providing any recreation and entertainment facilities and programs, such as swimming pools and youth athletic leagues.
We were making the economic argument that increased demand for recreation and entertainment will be matched by increased supply of recreation and entertainment.
While the private sector may not supply specific recreation programs venues (again, swimming pools and youth recreation facilities), people won't be sitting around with a bunch of money in their pockets because the private sector won't provide them with venues where the public can spend money.
Posted by
Utah Taxpayer |
10:40 PM
Neil,
There's one other tax policy issue that wasn't even addressed, and that is the issue of earmarking general taxes for specific purposes, which is what the CARE tax does.
Most tax policy experts agree that general revenues should not be earmarked for specific purposes because this prevents government programs from competing against each other for prioritization.
Posted by
Utah Taxpayer |
10:56 PM