Dependence on these dollars varies greatly. Five states — Alaska, Oregon, Montana, Delaware and New Hampshire — have no state tax on consumption. In twelve, there is no local sales tax. Five of the six states with combined tax rates above 9 percent are in the South. (See map for details.)
The One Big Beautiful Bill Act will reduce federal funding for assistance programs such as Medicaid, the Supplemental Nutrition Assistance Program, the Children’s Health Insurance Program and Temporary Assistance for Needy Families by as much as a trillion dollars over the next decade. Sales tax increases might not be the best strategy to fill this gap.
Sales taxes are regressive. Working class and middle-class Americans spend a much bigger share of their disposable income. “Higher income people have more bandwidth that is going to savings or investments and is not subject to the sales tax,” says Wesley Tharpe, a state tax policy expert at the Center on Budget and Policy Priorities.
In general, total revenue from sales taxes is a function of population. For states that attract large numbers of tourists, such as Nevada, Texas, Florida or California, the equation is different. Sales taxes are still regressive in these states, Tharpe says, but they capture revenue from out-of-state visitors. State and local policymakers could consider expanding their tax base by extending sales taxes to services such as lawn care, car repair, cosmetology or wellness clinics to capture a broader swath of economic activity. These would be "progressive" taxes, more likely to bring in revenue from spending by residents with higher levels of disposable income.
