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Part IV -Recommendations 1. Appropriate Role for Local Sales Taxes Given Minnesota's historical policy preference for equalization between communi- ties and recent bipartisan efforts to increase efficiency in government, it seems clear that a major shift to general authority for local sales tax without some restrictions is inadvisable. As currently constituted, the local sales tax is not a major component of the overall state and local revenue mix. The recent economic downturn and consequent budget crisis, coupled with reductions in local government aid has, however, caused cities, counties and other local units of government to search for additional revenue sources. Now the question is whether new or increased local sales tax authority is an appropriate answer, at least in part. Generally speaking, taxing and spending decisions should be as close to those affected as practical. This general principle stems from the notion that there should be a high degree of accountability to those affected for spending and taxing. Having local control also responds to the need for flexibility. The more local the taxing and spending decisions are, the better able (in theory) they are to respond to the unique situation and environment of those who are affected by them. Ranged against this general principle are a host of practical concerns. For example, the sales tax is a comparatively regressive tax. Adding a significant proportion of sales tax revenue to a base of local revenue now composed primarily of property tax which is also regressive would exacerbate the regressivity of taxation for local Broadening of local spending. sales tax authority risks negative competition Centralization of taxation at the state level, while diminishing to some degree the between communities, accountability and flexibility, does mean better equalization between communities. and can lead to a Centralization of sales tax is also less of an administrative burden than attempting perception of "winners to administer hundreds of individual local sales taxes. The cost of the administra- versus losers:' tive burden diminishes the return to the taxing authority and diverts taxpayer dollars to nonproductive uses. Significant broadening of local sales tax authority also risks negative competition between communities leading to a perception of "winners versus losers:' What, then, is the appropriate role of local sales taxes? Given Minnesota's historical policy preference for equalization between communities and recent bipartisan efforts to increase both the administrative and allocation efficiency in government, it seems clear that a major shift to general authority for local sales tax without some restrictions is inadvisable. General authority for local sales taxes without restriction as to use would lead to significant issues with equity, allocation efficiency, adminis- trative costs and competition between the state and local governments for the same resources. These issues as outlined in Part I would draw Minnesota farther from the ideal revenue system. ss