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of each tax type. Currently, Minnesota's "three-legged stool" has income taxes at 37 percent of the total, sales taxes at 28 percent, and property taxes at 35 percent. In addition to balance, taxes maybe evaluated with respect to how responsive their revenue streams are to changes in the economy (usually measured by growth in personal income). Taxes that produce revenue growth greater than that of the economy are called "elastic" sources. Conversely, inelastic revenues grow slower than the economy. Generally, inelastic tax sources should not be used to fund programs that tend to grow faster than the economy. Over-reliance on elastic tax sources can result in excessive instability in revenues, and magnify budget problems in bad times. Tax base disparities Minnesota policymakers have long recognized the need to fully or partially equalize disparities in local tax bases, especially for local funding having statewide signifi- cance, such as K-12 education. In some states, the courts have mandated or im- posedequalization schemes for local education expenditures. If the geographical distribution of retail sales is more uneven than that of taxable property, expansion of local sales taxes will increase tax base disparities among communities. The most direct way of accomplishing such equalization would be to add each community's local sales tax revenue, calculated using a uniform tax rate, to existing measures of property tax capacity that currently exist in various state aid formulas. If local sales tax proceeds are dedicated to large capital projects not likely to be funded by local general revenues, the case for general equalization aid is weakened. Inter-local competition Local sales taxes could increase competition between local communities for retail development, and create a bias for retail development over other types of economic development activity. Property-rich communities maybe in a better position to adopt local sales taxes with lower rates than property-poor communities. Studies indicate that a 0.5 percent local sales tax could cause a loss in gross sales of 1.5-5 percent, excluding the stimulative effects of new tax-supported spending.9 Heightened competition may reduce community willingness to enter into coopera- tive service agreements and joint provision of services. Widening the geographic area in which the local tax is applied can minimize these competitive effects, but may require some distribution scheme to share tax proceeds among jurisdictions in the wider area. Fairness of the overall state and local tax system Widespread use of local sales taxes will raise questions about the vertical and horizontal fairness of the total state and local tax system. Since sales taxes tend to be regressive, greater use of them will make the tax system more regressive. Minnesota closely tracks fairness using the Department of Revenue's Tax Incidence Study. The study contains detailed estimates of the degree of progressivity associ- atedwith most state and local tax sources, and the combined progressivity of the overall state and local tax system. While there is no consensus on the desired degree Key policy issues Due, John F. and Mikesell, John L. Sales Taxation: State and Local Structure and Adminis- tration. The Urban Institute Press, second edition, 1994. p. 314-316. 13