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Part II -General Principles and Issues Here is a review of key tax policy principles as they might apply to local sales taxes, and a list of the policy issues that an expanded local sales tax would engender. General Principles Public finance economists use a nearly universal set of five principles to evaluate tax policies and policy proposals. The principles say that taxes should be: General principles __. Simple and Understandable. Taxpayers and tax administrators should be able to discern who is responsible for the tax and have some basic knowledge of how their tax liability was determined. Simplicity reduces suspicion, increases voluntary compliance, and increases accountability. Fair. Taxes should distribute the burden of public spending in a manner consis- tent with acceptable standards of fairness as articulated through the political process. Fairness can be defined in terms of benefits received, that is, how well the distribution of tax burden matches that of the benefits received from public expenditures, or in terms of ability to pay, measured both horizontally (are equals taxed equally) and vertically (expressed by the pattern of effective tax rates over ranges of income-progressive, proportional, or regressive). __ Competitive. Taxes should not create a competitive disadvantage for selected industries or for Minnesota businesses relative to those in other states. .__ Stable and Adequate. Tax liabilities and tax revenue should be stable and predictable, particularly in relation to the spending programs they are designed to fund, and should provide sufficient amounts of revenue. :. Efficient. Taxes should be both administratively efficient (low cost of compli- ance and administration) and not disturb market-based decisions, unless the tax is explicitly designed to affect behavior. Key Policy Issues These principles can be applied to a discussion of the policy issues associated with Key policy issues expanding and administering local option taxes, and are summarized in a 1997 report of the National Conference of State Legislatures (NCSL) entitled Critical Issues in State-Local Fiscal Policy - A Guide to Local Option Taxes. The NCSL review asserts that "State and local taxes should be considered together because they are so interdependent, and because state legislators play an important role in determining the composition of both state and local revenues.'8 State revenue collections have dominated local tax collections for the 30 years from 1970 to 2000. The percentage of state and local revenues raised by the state in 1970 was 60.1 percent. By 2000, this percentage increased to 73.4 percent. ~ Critical Issues in State-Local Fiscal Policy, A Guide to Local Options Taxes. National Conference of State Legislatures. November 1997. p. 33. 11