Another challenge is that taxes on services are regressive, with a disproportionate impact on low-income residents, and are sometimes seen as an unfair way to plug a budget hole or reduce other taxes, prompting opposition from advocates for the poor.
“The services that get pulled into these plans … are not necessarily the ones that bring in the most revenue, but the ones that are more politically viable,” said Meg Wiehe, deputy director of the Institute on Taxation and Economic Policy, a study group that looks at the distributional effects of tax policy.
Wiehe, of the taxation institute, said comprehensive sales tax reform, including taxes on services, will happen only when it is broad-based and not piecemeal.
In any case, many lawmakers are already looking ahead, anxious to tax newer innovations rather than services, which started to take a larger portion of the economy decades ago.
“Lawmakers across the country have been very accepting of moves to tax the gig economy, digital downloads, Amazon purchases, and getting online retailers to collect and remit tax,” Wiehe said. “But on this [tax of services] we missed out. The ’80s and ’90s would have been the time to tax services.”