By Rep. Erik Paulsen

We know the problem. Minnesota’s economy is flat and fragile.

We have identified the driving factors behind the problem.

Minnesota’s current $935 million state budget deficit reflects the impact of a national economic slowdown that is driven by slower projected economic growth, record high oil prices, rising unemployment, a much-weakened housing industry and a related squeeze in our national credit markets.

Now we need the solution.

Declining economic growth not only needs a jump start, it needs a surge.

The federal government’s plans to cut interest rate cuts and issue tax rebate checks are designed to inspire consumer confidence but neglect to consider that consumers are hesitant to spend because they don’t have a job, fear the economy is going to get worse or need the infusion of cash to pay for their mortgages so they don’t join their neighbors in foreclosure.

Government spending will not create the long-term economic growth that Minnesota needs. We need production, jobs and innovation.

In Minnesota, we are ready to do more.

Government cannot on its own create prosperity. It cannot be the sole provider for the economy or the leading indicator of economic growth.

The engine that will drive our economy back into prosperity is business.

Therefore, the key to rescuing Minnesota’s economy should lie in our ability to create an environment that enables businesses to succeed and create well-paying jobs with benefits.

I was delighted to see bipartisan interest and support for the components of an economic stimulus package I proposed recently to re-energize our economy through incentives that promote production and create jobs, and a tax market that encourages economic development

One element of the package would reduce the state’s corporate income tax from 9.8 percent to 8.8 percent for companies that create at least 500 new jobs with an average pay of $25,000 in the previous year. According to its 2008 State Business Tax Climate Index, the Tax Foundation ranks Minnesota among the 10 worst states to grow jobs or start a business. A reduction in the corporate income tax will attract more Fortune 500 companies to our state and create well-paying jobs with benefits for our citizens.

We need to encourage business expansions based on innovation in bioscience, medical technology and biotechnology through an expanded tax credit for research and development. Minnesota is far behind the curve on promoting this needed R&D. North Dakota currently provides an 8 percent tax credit while California provides a whopping 24 percent tax credit for research and development. These tax credits will help lead to production, production leads to opportunity and opportunity creates job growth. The full circle process needs additional incentives and investments to grow.

Another initiative to move Minnesota toward supporting job creation is accelerating the phase-in of the single sales apportionment – a fancy way of saying businesses should pay tax on the basis of their sales, not on the location of their corporate headquarters or the number of their employees. One study estimated that enacting a 100 percent sales weighting would add 44,000 new jobs in Minnesota. Unfortunately, we are being surpassed by Wisconsin and other Midwestern states who are repealing this tax on job creation quicker than Minnesota.

Finally, providing an immediate exemption to small businesses for capital equipment expenditures would encourage businesses to invest in equipment and lead to additional hiring of employees to run that equipment.

Minnesota is competing in a 21st century global economy. The economic stimulus package is the cure to the state’s current economic ills. It provides the necessary incentives to help grow jobs, business opportunities and the state’s economy.

While economists and pundits still debate the extent and depth of the America’s current economic downturn, nobody suggests that it is permanent. The states that proactively deploy economic policies to stimulate business will not only soften the ill effects of the downturn, but will also position themselves to be the first to benefit and exploit the opportunities in economic recovery.

 Rep. Erik Paulsen represents District 42B in the Minnesota House of Representatives. He is a candidate for the District 3 Congressional seat being vacated by Rep. Jim Ramstad. He serves on the Rules and Legislative Administration; Commerce and Labor; Taxes; and Ways and Means committees.