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Three Big Problems with Sales Taxes Today—and How to Fix Them

Sales tax rates are talked about frequently, but policymakers spend less time focused on sales tax bases—the basket of transactions that the sales tax applies to in a given state. That’s a shame, because there are three big problems with sales tax bases today, and policymakers have an opportunity to fix these issues.

Public finance experts generally agree that a properly-structured retail sales tax should apply to all final consumption so that you have a broad base and can levy a low rate. However, in practice most states have sales taxes that fall short of this ideal on three counts:

  1. They do not tax services.
  2. They exempt many final consumer goods that should be taxed.
  3. They tax business-to-business transactions that should be exempt.

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