Tax increases are one potential remedy for the budgetary problems that beset governments at all levels. Increasing the sales tax is one of the most popular solutions. It is still unclear, though, if this is a good approach to pay for more services.
Currently, the state of Washington levies a 6.5% sales tax, with certain localities also imposing additional fees. But not all services are subject to taxation. For instance, there is typically no sales tax on healthcare, education, and professional services like law and accounting.
Which services would be impacted if the sales tax was raised to pay for extra services? Generally speaking, it would probably have an effect on existing taxable services including retail sales, restaurant meals, and hotel stays. Even though these costs might seem insignificant, they can soon pile up, especially for people with lower incomes.
The fairness of increasing the sales tax to pay for public services is another factor to take into account. Because sales taxes are regressive, they disproportionately affect people of lower means. This is due to the fact that low-income people spend a bigger percentage of their income on necessities that are subject to sales tax. Conversely, persons with greater salaries can afford to spend more on luxury goods or trips, which may not be subject to sales tax.
Furthermore, the government may not necessarily see an increase in revenue by hiking the sales tax. According to studies, when sales taxes are raised, consumers may alter their spending patterns and cause a drop in revenue. Small firms that depend on consumer spending may suffer the most from this.
As a result, even while increasing the sales tax would seem like a quick way to pay for more government services, it could not be the best or most equitable answer. Instead, authorities should take into account a range of revenue choices, such as progressive taxes that burden wealthier earners more heavily and spending reductions to balance budgets.