What grows jobs?

Minnesota's gubernatorial candidates staked out widely different paths to job creation at a Duluth debate on Tuesday, with GOP candidate Tom Emmer proposing to revive the state's economy largely through business tax cuts while DFLer Mark Dayton focused on public investments. The Independence Party's Tom Horner pitched a combination of the two.

"You can do it without government," Horner said Tuesday. "But you can't do it in spite of government."

The reality, according to several economists, is that government has a limited tool set for kick-starting jobs and neither tax cuts nor investments may be enough to put a substantial number of Minnesota's unemployed back to work soon.

Emmer said Tuesday that on the road back to recovery, "government's role is to literally get out of the way and allow these entrepreneurs to realize their full potential."

Dayton said the government and private sector have a "partnership" to create jobs and said that public spending research development, highways and education boosts economic growth.

Horner stressed that government should impose pro-growth tax policies and spend money on education as well as highway and broadband initiatives.

All three agreed that streamlining regulations is key to promoting job growth.

What works?

V.V. Chari, a professor of economics at the University of Minnesota, said government initiatives ranging from business tax breaks to bonding projects "are not going to have much of an impact" on the state's ability to create jobs.

Cutting business taxes, he said, would reduce overall costs only slightly, given that federal taxes make up a much larger portion of business expenses. And there's a tradeoff, Chari noted. Reduced taxes can lead to reduced services, such as transportation, that businesses consider when deciding whether to relocate or expand.

Similarly, he said, the long-term costs of paying debt on large bonding bills can dampen business investment and job growth in future years.

"People see the jobs that are created," Chari said of construction projects financed by state bonds. "They do not see the effect of jobs not created."

Chari said there is not enough evidence to evaluate whether specific assertions about job creation though tax breaks have merit or are merely "random claims with no basis in fact."

Art Rolnick, longtime director of research for the Federal Reserve Bank of Minneapolis, gave higher grades to Emmer's proposal because it would reduce business taxes more broadly.

"You don't try to pick and choose winners," said Rolnick, who retired recently from the Fed to take a job at the Humphrey Institute. "You do across-the-board tax cuts for businesses."

But he prefers Horner's plan because it addresses job growth by keeping tax rates low and also brings in revenue to close the budget gap by taxing sales of clothes.

He says Dayton's plan to raise taxes on wealthier Minnesotans could discourage investment in job creation by small businesses.

As for increased bonding, which Dayton and other Democrats have touted, Rolnick said it only makes sense if the money is spent on things that will make a lasting difference, such roads, bridges and education.

"The best way to create jobs is to educate your kids," he said.

Jobs and the deficit

Emmer said he could reduce taxes by $626 million without adding to the deficit. The tax cuts, he said, "don't add to the deficit unless you want to buy into this accounting that when these folks give the government their tax money and the government [lets them keep some of it] that somehow that adds to the deficit." For accounting purposes, tax cuts are counted as spending because they reduce available revenue.

Dayton said Emmer's plan would in fact grow the deficit, making it more pressing for him to disclose what spending he plans to cut.

"You just added, Rep. Emmer, over $600 million dollars to that deficit," Dayton said. "So now we're waiting still for the hard part."

Pat Doyle • 651-222-1210 Eric Roper • 612-673-1732