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Federal funding: far from free

Recently, the Tax Foundation released a study showing which states rely most on federal aid and what percentage of their budgets come from these federal dollars.

States receive a significant amount of assistance from the federal government in the form of federal grants-in-aid. In fact, when averaged together state governments relied on federal money for almost one-third of their general revenue in 2014.



This dependence diminishes local priorities in favor of national special interests, incentivizes unnecessary spending at the state and local levels, mandates burdensome regulations, and leaves states vulnerable to future federal spending crises. Simply put, these dollars aren’t free – and the economic, social and financial costs are passed along to taxpayers.

Sutherland Institute wrote an article a year ago about the negative consequences of federal aid in an op-ed in the Daily Herald titled The Myth of Free Federal Money:

“No such thing as a free lunch.”

“If it sounds too good to be true, it probably is.”

“You don’t get something for nothing.”

We know all this. Yet the allure of “buy one, get one free!” “no money down!” and “get 6 months free!” still draws us in.

We see this natural impulse at work when “free” federal money is offered to our elected officials. With billions of tax dollars dangling in front of state and local governments, the sales pitch of better schools, stimulated economies and improved roads usually proves too enticing to turn away.

Unfortunately, this promise is based on a misconception. Federal funding isn’t free at all. In fact, according to new research, it costs Utah taxpayers hundreds of millions of dollars per year.

A new study from Economics International (EI) reports that each additional dollar of federal grant money to the states is associated with an average increase of 82 cents in new state and local taxes.

In Utah, the extra tax burden from every dollar of federal funding is 72 cents. To illustrate, a hypothetical 10 percent increase in federal grants to Utah ($560 million) would be associated with approximately $400 million more in spending from state and local government — an additional tax burden of about $140 per Utahn.

That’s slightly below the national average, but it is cause for genuine concern. It means Utah’s elected officials are being manipulated by the federal government into increasing the financial burden on Utah taxpayers in ways they wouldn’t do otherwise.

We encourage the public and policymakers to reread this op-ed and reject federal funding’s empty promises.

Utah ranks #1 for family prosperity

A joint project by Sutherland Institute and the American Conservative Union Foundation found Utah ranks first in the nation according to the Family Prosperity Index, or FPI. The FPI measures more than 50 of the economic and social factors that indicate family prosperity, including but not limited to marriage and divorce rates, crime rates, STD rates and household income. A state that scores well on the FPI is one that is moving toward the goal of creating family prosperity. 

This new study found Utah dominates the 2016 Family Prosperity Index, not only ranking at the top but also holding commanding leads over the second-ranked state and the national average. In fact, Utah’s FPI score has increased by 3.6 percent over the last five indexes – from 7.12 in 2012 to 7.38 in 2016. The FPI national average is normalized at 5.0. 



From Sutherland Institute President Boyd Matheson:

“Of all the awards and accolades Utah has received, this may very well be the most significant. While Utah has long recognized family as a critical social engine, this report illustrates the power of the family as an economic engine. Lawmakers would be wise to recognize that just as a strong economy helps families, strong families strengthen economies.” 

From Sutherland Institute Director of Public Policy Derek Monson:

“Rather than measuring and ranking a stand-alone niche of Utah’s economy that many never see or experience, the Family Prosperity Index measures whether Utah’s economic prosperity is reaching Utah’s families, and how Utah’s families are driving Utah’s economic prosperity. Clearly, Utah has room to improve in its most populous county when it comes to the related issues of drug use and suicide – and these are critically important things that demand our attention. But Utahns can be proud in our understanding that we lead the nation economically because we lead the nation in how we create, build and devote ourselves to our families, and by extension our communities.”

From American Conservative Union Foundation Chairman Matt Schlapp: 

“The Family Prosperity Index provides a blueprint for creating an environment for families to flourish, and Utah, with its No. 1 rank on the 2016 FPI, has set the standard for the rest of the country. I hope leaders across the county will come to understand the factors driving Utah’s success and use the FPI as a tool to expand prosperity in their own states.”


  • Six indexes (and their corresponding sub-indexes) make up the FPI: Economics, Demographics, Family Self-Sufficiency, Family Structure, Family Culture, and Family Health. All sub-indexes can be viewed in the attachment.
  • Utah takes the lead in every index aside from Economics, where North Dakota comes in first. This data was impacted by North Dakota’s fracking boom, which has since slowed.
  • An area of concern for Utah includes the drop in the Family Health index caused by the self-mortality sub-index, which consists of suicide and drug overdoses as a percent of population. Utah has higher-than-average rates.
  • Additionally, a county-level FPI analysis raises alarms for Salt Lake County. Negative trends are noted when it comes to children in poverty, violent crime rate, property crime rate, the level of married taxpayers, and unwed child birth.


Mature Adult man working in the office

Op-ed: A new economic dialogue can emerge from our fiery election season

Originally published in the Deseret News.

After this bitter election season, America would do well to reflect on this ancient Chinese proverb: “Out of the hottest fire comes the strongest steel.” It is our low points that often create our greatest opportunities to move forward and become stronger. This is especially true in the area of jobs and the economy: Hard times refine businesses, family budgets and economics, making them stronger over the long term.

This is the opportunity we have before us. We can move beyond the divisiveness of this election season toward a new, elevated economic dialogue on economic issues in our communities — the kind of dialogue that produces practical solutions to real problems. This community-driven dialogue should be grounded in the American economic principles of earned success in the free market, and the values of work, education and family.

Among Americans who graduate from high school, obtain some form of full-time employment, wait until 21 to marry, and have children only after marrying, the poverty rate is only 2 percent, according to research published by the Brookings Institution. And nearly three-fourths of this group achieve middle-class status. In other words, the values of work, education and family are guideposts toward financial security.

When these values are combined with free market principles, they become an engine of economic prosperity. When the market is not tilted toward the politically connected by corrupted government regulatory and subsidy schemes, then hard-working and educated employees and entrepreneurs, motivated by those they love, are driven to tirelessly produce and innovate by the natural moral imperative of the free market: Financial and economic rewards go to those who serve the needs of others.

This dialogue will require political and thought leaders who offer something more than a sentiment of “tough luck” to the millions of working Americans who have spent decades contributing to their country, only to be left behind by their nation’s economy. They have watched as leaders have scrambled to bail out jobs in failing multibillion dollar corporations, banks and government-subsidized organizations, while they lost their access to the American Dream and were offered welfare programs and told their jobs were not coming back.

What does this dialogue mean for Americans?

For working Americans, it means policies that promise to return America’s traditional middle-income jobs — manufacturing, construction and natural resource development — to a level playing field nationally and internationally. It also means new, affordable pathways to stable employment that avoid the mountain of debt that comes with typical higher education. Utah’s system of “stackable” credentials and Sen. Mike Lee’s proposal to expand accreditation options are promising starts.

For those in poverty, it means welfare policies that offer the promise of a better life through the “success sequence”: graduate from high school, find full-time employment, get married (and stay married) and have children — in that order. It also means recognizing that solutions to poverty come from individuals and communities, not distant governments and bureaucratic rules.

Individuals in poverty have innate and unique economic talents and abilities, and they deserve freedom from nonsensical professional licensing regimes crafted by industry insiders with an interest in making a license expensive and difficult to obtain. Similarly, community-based organizations and institutions — private and public, religious and secular, nonprofit and for-profit — should be freed from one-size-fits-none welfare regulations and programs that prevent them from customizing welfare resources to the needs of real people in poverty. Because they are closest to the situations of those in poverty, community-based groups are better situated than distant governments and bureaucracies to know the sources and solutions to poverty.

By elevating the economic dialogue within our individual communities, we extend not only the promise of political and societal renewal to ourselves, but we extend hope of a better life to the millions who have lost or never had access to the American Dream. A polarizing election season can instead be remembered as the moment we chose to cast aside the Pyrrhic victories of status quo politics and rhetoric, and found strength through one of our hottest political fires.

To ease income inequality, smooth the path for innovators — Sutherland Soapbox, 11/4/14

Making_shoe_racks,_Coos_County,_ca._1948_(5670423808)This post is a transcript of a 4-minute weekly radio commentary aired on several Utah radio stations.  

Today is Election Day, so I want to talk about an issue that is the driving electoral message of hundreds of political candidates nationwide. That issue is income inequality.

Now the first thing to understand is that, in a free society, income inequality will always exist at some level. If given the liberty to do so, enterprising individuals will find a way to make more money – in some cases a LOT more money – than their neighbors. If nothing else, the history of our nation is a testament to this: There have always been rich people, middle income people, and poor people.

Of course, to acknowledge this reality as reality is not saying we should accept extreme income inequality simply as a fact of life. When growing income inequality reflects higher barriers to economic mobility for the poor and middle class, that problem must be addressed. For a conservative, this is first because the respect that we owe to the human dignity of our lower-income neighbors as free and reasoning individuals places a moral duty on us to ensure that they have reasonable opportunities to flourish as human beings, including the chance to improve their economic standing. It is also because the thriving free market economy that conservatives value requires a free market economy that is worth living in.

But the sad reality is that many who publicly lament today’s high levels of income inequality have no serious plan for addressing the problem, and are just using the issue to manipulate people’s emotions in order to capture their votes. And in today’s politics, this is especially true among political progressives.

Income inequality has become the latest fad in progressive policy circles, partly driven by an economic recovery to refuses to act or feel like a genuine economic recovery, and partly driven by the popularity of French economist Thomas Piketty’s book Capital in the 21st Century. Predictably, the progressive focus on the issue has been accompanied by calls for higher taxes on the wealthy and increasing the minimum wage, which it seems are the only ideas that progressives ever have about income inequality.

For my part, I have never understood this approach. After all, how is raising taxes and making people unemployable by raising the minimum wage above the market value of the skills of many low-income Americans going to make it easier for them and their families to achieve the American dream?

For those familiar with Piketty’s arguments about income inequality and the criticisms of his argument, the reality of the issue is more complicated than can be solved by simply taking money from the wealthy and attempting to mandate away the problems of the working poor.

A study published last month by the National Bureau of Economic Research identified two conflicting forces underlying income inequality. Encouraging inequality is the entrepreneurial desire to significantly increase one’s income. Limiting inequality is the “creative destruction” caused by disruptive innovations which shift income-earning potential from one individual, business, or market sector to another, thus naturally limiting how much income any one person or business can accumulate.

Among other things, the researchers conclude that policies which prevent entrenched business interests from blocking new innovation and competition will serve to decrease income inequality.

There are many examples of policies that block or limit new competition or innovation. One includes ridiculous professional licensing schemes that require thousands of hours of formal education before a low-income individual can open a business in which they have some basic skill. Another is economic development policies that offer multimillion dollar tax incentives to multi-billion dollar corporations willing to relocate, effectively granting them the privilege of a better effective tax rate than their smaller and often more innovative competitors.

If we seriously mean to address income inequality and economic mobility, then we have to do more than the progressive platitudes of raising taxes and minimum wages. We have to reject calls from those representing big business to protect their privilege to special tax incentives. And above all, we have to genuinely embrace the principle of the free market in our policymaking, and reflect that principle in areas like business licensing and regulation, and economic development policy.

Otherwise, all this railing about income inequality amounts to little more than grubbing for votes.

For Sutherland Institute, I’m Derek Monson. Thanks for listening.

Receive this broadcast each week directly to your iTunes by clicking here

Energy development boosts poor and middle class

Oil_wellAmid the agonizingly slow recovery from the last recession, policy-makers on both sides of the aisle have turned their focus to improving economic mobility for the poor and economic security for the middle class. So from the political left we hear calls to raise the minimum wage, and from the political right we hear proposals to expand the Earned Income Tax Credit and reform welfare programs.

But based on the results of a recently published study from the National Bureau of Economic Research, it seems there is another policy path toward addressing poverty and middle-income security: developing energy resources.

The researchers report that a boom in oil and gas production and employment has significant, positive impacts on nearby employment in manufacturing. This is “because many manufacturers in resource-abundant counties supply inputs to the oil and gas sector, while many others sell locally traded goods and benefit from increases in local demand.” The researchers conclude that their study “highlight[s] how linkages to natural resources can be a driver of manufacturing growth.”

How is this link relevant to economic mobility and security? Jobs on manufacturing and energy development have historically been vehicles for individuals with limited formal education and job skills to move up the economic ladder, and for middle-income families to secure and maintain their advantageous economic position. Subsequently, increasing job opportunities in both sectors through energy resource development has the potential to simultaneously strengthen economic mobility for the poor and economic security for the middle class.

In Utah, this is magnified by the fact that much of the energy resources in the state reside in more rural areas, where economic development and job opportunities can be limited. In other words, energy development and manufacturing growth provide greater possibilities for rural Utah to keep younger generations in the area and/or bring in new people, instead of losing or never having a chance with them because most good job opportunities are to be found in more urbanized areas and cities.

As policymakers consider ways to use policy to provide new economic opportunities to the poor or to shore up the position and outlook of the middle class, they should remember the potential of energy development to do both.

Be ‘warriors’ for social justice, Mike Lee and Arthur Brooks tell audience at Sutherland event

Sen. Mike Lee speaks at Sutherland dinner in Salt Lake City on Oct. 1, 2014. (Photo © Sutherland Institute)

Sen. Mike Lee speaks at Sutherland dinner in Salt Lake City on Oct. 1, 2014. (Photo © Sutherland Institute)

Is social justice a conservative cause? Yes, absolutely.

Sen. Mike Lee of Utah and Arthur Brooks, president of the American Enterprise Institute, explained why it’s not just a cause, but a moral imperative, last night at a Sutherland Institute dinner in Salt Lake City.

Brooks told the group gathered at La Jolla Groves that conservatives who want to improve social justice cannot be elitist about the type of work considered “worthy.”

“All work is blessed.”

If you believe in fighting to improve life for poor and middle-class families, you cannot believe that trimming a hedge is less valuable than managing a hedge fund, he said.

Sen. Lee said that because nearly every strategy in the “war on poverty” has failed to achieve true societal change, conservatives need to summon the courage to lead this fight with new strategies.

“Defenders of today’s status quo say that any critique of our welfare system is really just a thinly-veiled attempt to destroy the social safety net. But what we all should want – and what I certainly do want – is not to destroy the safety net, but to make it work.”

America’s complicated tax code, health care and justice system hurt working families, Sen. Lee said. “Our justice system tears apart communities and fractures families among our most marginalized communities.” Sen. Lee is a co-sponsor of the Smarter Sentencing Act, along with Sen. Dick Durbin, D-Ill., and Sen. Patrick Leahy, D-Vt.

Lee urged supporters of conservatism to help “make poverty temporary, not merely tolerable.”

“We usually refer to the free market and civil society as ‘institutions,’” he said. “But really, they are networks – networks of people and information and opportunity. …

“Networks of opportunity formed within the free market and civil society are not threats that poor families need more protection from. They are blessings that poor families need more access to.”

Derek Monson, policy director at Sutherland Institute, pointed out that family strength and culture are intertwined with economic issues – issues that are at the heart of Sutherland’s Center for Utah’s Economy. Read more

A reminder of Utah’s lost energy opportunities

UtahTarSandsThis just in! There’s energy in the ground, and there’s money and jobs to be had in energy. OK, maybe that’s old news.

Not that it matters that much in Utah anyway, where the ground is mostly owned by the federal government, and it’s not letting the energy, the jobs or the money out.

North Dakota, which is about 3 percent federally owned, just passed the million-barrel-a-day mark for crude production, making it one of the top producers in the nation. Meanwhile Utah, which is over 60 percent federally owned, produces about a tenth that amount but is sitting on the potential for $7 billion annually in economic value, a billion or so in tax revenues, and over 50,000 jobs, according to an analysis by Sutherland’s Coalition for Self-Government in the West. But, while oil production on private lands has increased by about a million barrels a day since 2009, production on federal lands has been flat. That’s bad news for Western states that are mostly controlled by D.C. bureaucrats.

And it’s a lot of lost opportunity.

Economic forecast: optimism or doom and gloom?

Reymerswaele_Two_tax_collectorsThe federal Commerce Department announced recently that growth of the U.S. economy was “near zero,” as reported by some media outlets. Growth was estimated at 0.1 percent, a pitiful rate that comes after several years of sluggish economic recovery from the most recent recession.

As reported, the reasons given for the stagnant economy include “an unusually cold and disruptive winter, coupled with tumbling exports.” Yet some economists remain optimistic that this year “will be the year the recovery from the Great Recession finally achieves the robust growth that’s needed to accelerate hiring and reduce still-high unemployment.”

In this context, scholarly economist John H. Makin at the American Enterprise Institute published an article titled “The limp recovery, five years on>” that seeks to explain the current “feeble expansion” and project its prospects for growth in the next year. His prognostications are decidedly less optimistic than those reported in various news outlets.

Makin (see his bio and impressive credentials here) reports that the current recovery “has been considerably below average when compared to post-World War II recoveries.” Only in two quarters has growth been above average since June 2009. He gives several reasons for this.

One is weak growth in business investment due to investor uncertainty, driven by the financial crisis and massing changes in federal regulation from the Obama administration, weak growth in consumer demand, and slowing levels of inflation. A second reason is the slow growth of household spending, which is attributed in part to the fact that “it has required seven full years for households to regain levels of net worth last seen in 2007,” leaving households cautious about spending money.

Subsequently, according to Makin, “the recent expansion has been characterized by especially weak growth of employment and persistence of high unemployment, notwithstanding some progress over the past year.” This problem has been compounded by the fact that “labor-saving technologies [have reduced] the need for labor in the production process,” such as “the ability to use smartphones and tablets to manage communication and scheduling without a human assistant.” Interestingly, Mr. Makin ties this to income inequality: “[T]he result has been a shift in income distribution away from labor and toward capital during much of this expansion.”

Makin predicts a gloomy outlook for the economy over the next year, but concludes with a prescription. “Something additional is needed to sustain a stronger recovery in the United States – leadership.” That leadership includes pushing to reform federal welfare, taxes and regulations (such as those created under the auspices of Obamacare) to make work more financially rewarding for employees and creating new jobs less costly for employers. It also includes reforming things like the education system in ways that make it more possible, and I might add more affordable, for individuals to climb the economic ladder.

Makin’s article is a good one for anyone interested in the economy and where it is likely headed in the near future. For my part, I wonder whether the Obama administration has the maturity and statesmanship to support reforms that amount to a tacit admission that its policies have been economically harmful to individuals, families, and businesses. But there’s always hope.

Don’t take my PILT down, man

Calf Creek Canyon in Grand Staircase-Escalante National Monument.

Calf Creek Canyon in Grand Staircase-Escalante National Monument.

There’s nothing wrong with PILT (Payment in Lieu of Taxes) that getting rid of the need for PILT won’t fix. But so long as there’s a “in Lieu of Taxes,” getting rid of “Payments” would be fundamentally unfair and harmful to Western counties and states. And yet, that seems to be where we’re going.

PILT was created in the 1970s to offset the revenues that counties – mostly in the West – lost due to tighter environmental regulation on federally owned lands.  It was a “make ’em an offer they can’t refuse” scenario where the federal government said they would offset lost tax revenues with direct payments that the counties could then use to pay for their schools, public safety, and all of those boring things. In other words, the counties were “asked” to trade economic independence and good jobs for an annual check from Uncle Sam.

This may not seem like a big deal to states east of the Rocky Mountains – you could add up all of their PILT payments combined and it wouldn’t equal the payments that go to any two Western states. But if your county is 90 percent (or even 98 percent) owned by the federal government it’s easy to imagine that having no property or income taxes coming off of those lands can have a significant impact, not just to counties’ coffers but to their way of life.

And that seems to be the direction we’re going. The recent omnibus (D.C.-speak for “too big for anyone to read”) spending bill cut PILT payments to … nothing.

Read more

Of bacon and bad policy

egg baconWhy do our fearless leaders in Washington continually claim that middle class jobs are their top priority while incessantly inflicting job-killing policies on us? I don’t think it’s an accident or an evil plot (well, not always anyway), but rather a simple case of cognitive dissonance. Let me illustrate.

I’m a big fan of the bacon makes everything better culinary method. I’d put bacon on yogurt, except I don’t like yogurt. And yet I also know that too much bacon is bad for me. So I cool the kitchen with my refrigerator while staring at those savory slices trying to talk myself out of piling pork belly on whatever lesser foodstuff will end up being lunch.

That’s called cognitive dissonance: a mental conflict that results from holding the two incongruous beliefs that bacon is the best thing since (or on) sliced bread, and that it’s also having the same effect on my arteries as pouring wet cement into a standpipe.

Ok, maybe that’s the Torquemada  of tortured metaphors. But the point is that our folks in Washington are suffering their own cognitive dissonance, stuck between a belief that they’re the answer to all the country’s ills and the reality that they’re actually the cause of all too many of them. Why does this matter?

Read more