Principles of the MCFE

In developing tax policy, it is critical that “ability to pay” is balanced by a consideration of other tax principles that are no less crucial to a high quality revenue system; namely, competitiveness, administrative efficiency, transparency, stability, equity, and minimal economic distortion.
Because the incidence of business taxation ultimately resides with individuals in the form of higher prices, lower wages, and lower returns on capital, the basis for taxing business should be strongly correlated to the direct benefits received by business from government services and should be grounded in economic presence rather than profits.
Accurate tax pricing is a key to ensuring that the levels of service demanded of government are calibrated with citizens’ desire to pay for them. Accurate tax prices also help ensure governments will pursue reform and redesign initiatives when needed. While we acknowledge that federal and state aids provide important assistance in addressing public policy needs and that not every citizen is equally able to pay for all government services, Minnesota’s system of taxation should not strive to insulate the majority of voters against the burden of financing government spending.

Effective citizen oversight over governmental processes and finance is a foundation of our democratic system of government. We believe that to the degree the majority of voting citizens is shielded from the cost of government spending, they have less incentive to be involved in exercising their responsibility for government oversight and will not obtain the best results from government.
The pursuit of efficient, effective, and accountable government is best served by fiscal strategies that connect responsibilities for raising revenues with responsibilities for spending revenues. Practices such as an unduly heavy reliance on intergovernmental transfers and business subsidies to finance state and local government shield the majority of voters from the cost of government programs. The liabilities and dangers resulting from this practice include greater, unrestrained incentives to spend and a loss of local control and accountability.
Funding public policy outcomes rather than inputs, funding individuals rather than institutions, and creating the necessary flexibility within government institutions to innovate and reward excellence are also essential strategies in achieving high quality government at a price taxpayers are prepared to pay.

Transparency is critical if we intend to encourage understanding and support for revenue and spending decisions. Taxpayers need to understand the real costs, sources of revenue, program goals, expected outcomes, and performance results inherent to all major spending programs. Without this, we cannot have an informed debate on taxes or spending.