Structural Deficit: The Shift in Consumption from Goods to Services
As mentioned in our previous post on the structural deficit, Washington relies heavily on the retail sales tax to raise revenue for important public investments. The retail sales tax applies primarily to the sale of goods, taxing few services.
The failure to tax services is one of the reasons that our revenue structure cannot keep pace with the natural growth in the economy. As the graph below shows, Americans have shifted their consumption patterns from spending 49% of their total expenditures on goods in 1983 to only 40% in 2008.
In light of this shift to a service economy, Washington should consider expanding the sales tax base to include a broader selection of services. Not only would taxing services yield much-needed income for the state, it could help to reduce the year-to-year volatility of sales tax collections and make the state sales tax system more fair.
