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Gov. Dayton looks to make Amazon an offer they can’t refuse. What might that be?

The news that Amazon is looking for a second North American headquarters has had politicians across America scrambling to make them an offer. Our own governor, Mark Dayton, said

“With as many as 50,000 new jobs possible for Minnesota workers and families, I have directed Commissioner Shawntera Hardy and the Department of Employment and Economic Development to work with city, regional, and state partners on a proposal to bring Amazon’s new headquarters to Minnesota”

The $5 billion project would house as complete a headquarters as the company’s Seattle base, which it claims brought 53,000 jobs to the city as well as a nearly $26 billion payroll. What sort of proposal might Go. Dayton and DEED make to Amazon to entice them to the Land of 10,000 Lakes?

“Incentives do make a difference”

In a recent interview with Twin Cities Business, Gov. Dayton gave some indications.

TCB: You’ve supported subsidies for some business ventures in the state, such as a proposed Louisiana-Pacific siding facility on the Iron Range. What’s your demarcation line on where the state should subsidize and where it shouldn’t?

MD: It’s very competitive with other states offering subsidies. Now, there are studies that have shown they are not effective, but the reality is that a company like Digi-Key, interested in expanding in northwestern Minnesota, is a huge economic benefit to the region. When I was DEED [Department of Employment and Economic Development] commissioner, we looked at costs versus the economic gains of employment and tax collections.

TCB: But if studies show they are not effective…

MD: You can argue it either way, but it’s not a perfect world. Cliffs Mining has announced they’re going to develop a new facility in Ohio; $300 million in incentives. Their Republican governor is happy as can be. Incentives do make a difference.

TCB: So your criteria is a net economic benefit? 

MD: Exactly.

It is hard, but not impossible, to see Gov. Dayton offering subsidies to a multinational behemoth like Amazon.

Instead, perhaps the most useful quote from the TCB interview was Gov. Dayton’s admission that “Incentives do make a difference”. I call it an admission because, all too often, Gov. Dayton and his employees insist that they can raise this or that tax without it having any effect on the thing being taxed. Taxes on income are raised, for example, on the assumption that incentives don’t make a difference and that people will carry on working and earning and paying tax as before. Quite why incentives matter in one case and not in another is never spelled out.

Indeed, Gov. Dayton isn’t a complete newcomer to this logic. He is currently protesting a freeze in cigarette tax rates because he thinks lower rates will encourage smoking. But what this might mean for the Amazon offer is that, rather than cash handouts of the kind Louisiana-Pacific got, state policymakers might offer them a set of tax breaks.

If Gov. Dayton does offer Amazon tax breaks, this will represent a pretty clear admission that tax rates do drive decision making and that lower rates encourage more economic activity. He will have learned his own lesson; Incentives do make a difference.

Watch this space.

John Phelan is an economist at Center of the American Experiment.

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