There’s been a lot of commotion about the deal Wisconsin struck with Foxconn to potentially create thousands of jobs in exchange for up to $3 billion in state tax breaks. I won’t pass judgment on the Wisconsin deal as I don’t know all of the details, but it raises the question of whether granting huge corporate subsidies or tax breaks to select businesses is good policy.
The answer to that question is a resounding NO, but unfortunately in Minnesota it’s become the primary economic development strategy of the Dayton administration.
Minnesota is engaged in what’s often called the “deal model” of economic development: providing a hostile tax and regulatory climate for businesses, but offering a select few large corporations special tax advantages to create jobs in the state.
The “deal model” has high payoff for politicians (as they get to claim the creation of jobs and engage in a ribbon-cutting photo-op), but it’s inefficient and extremely unfair.
Essentially, when government gives tax breaks to lure a big business to Minnesota, it’s telling small businesses throughout the state that they’ll be paying even higher taxes in order to bring their competition into Minnesota.
What we should be doing
Instead of providing tax breaks to companies to put on their bottom line, we should be improving the tax and regulatory climate for all, creating partnerships to close the skills gap and increasing business export initiatives. And as much as possible, we should be fostering growth of companies that are already in Minnesota.
To suggest that incentives should never be provided to businesses to create jobs in Minnesota is not realistic or honest, since practically every state in the country offers something to try to lure in businesses. We should, however, offer incentives very sparingly and they should not only help the targeted company but should also create tangible assets for other businesses.
A great example is the deal that the state of Texas struck with Texas Instruments (TI) several years ago. In order to persuade TI to expand within the state rather than elsewhere, Texas agreed to pay for significant highway infrastructure to the new facility and invest in improving the electrical engineering department at the University of Texas. Both investments helped not just TI, but other companies in the state.
A hostile tax and regulatory environment
Unfortunately, the Dayton administration has not only ignored these sorts of investments in favor of targeted tax breaks for the few but it has also created a very hostile tax and regulatory environment in Minnesota that’s leaving us behind our neighboring states economically.
Minnesota’s unemployment rate is now higher than any of our neighbors; our GDP is actually shrinking; and Dayton’s own budget office predicts that wage growth in Minnesota will lag behind the rest of the nation in the coming years.
Minnesota needs to be a leader again in the creation of high quality, well-paying jobs and we need to make dramatic policy changes to do that, but we should focus those changes on policies that benefit all businesses and entrepreneurs, not just a very select (and wealthy) few at the expense of everyone else.
Jeff Johnson is a Hennepin County commissioner. A Republican, he is running for governor in 2018.