Why States Should Now Consider Expanding Sales Taxes to Services, Part 1

Document Type

Article

Publication Date

2020

Abstract

States are facing a severe budget crisis as a result of the coronavirus pandemic. And with the federal government unlikely to pass a relief bill to address those state budget issues,1 states will need to play a significant role in making up revenue shortfalls.

This is the first in a three-part series, which is a contribution to Project SAFE: State Action in Fiscal Emergencies. This essay will lay out the general case for why states should consider expanding their sales tax bases to more services as a response to the COVID-19 crisis. The follow-ups will discuss further mechanics and details of how best to accomplish this goal. In particular, the second essay will argue that there are low-hanging reforms that could raise substantial revenue, would represent good tax policy, and might be politically possible even during the current crisis. In the third essay we will then introduce reforms to help with the critical problem of tax pyramiding.

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