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A progressive income tax is the preferred method of raising revenue at the federal and state levels. Other sources, such as a consumption tax, may be needed.
Most states and localities generate a significant portion of state and local revenue from the taxation of retail sales. Such taxes are attractive because they are relatively easy to administer.
Due to their regressive nature, raising state and local sales taxes should not be the first choice for increasing tax revenues.
States and localities should include services in the taxable base to reduce regressivity and improve neutrality.
Exemptions from state retail sales taxes should be narrowly designed to reduce their regressive nature and avoid pyramiding.
Goods sold over the internet and through catalogs should be subject to the same sales tax treatment as goods sold by local brick-and-mortar retailers.
The mainstay of local taxation is the tax on real estate, known as the property tax. It is used to fund an array of critical state and local services, most notably public schools.
States should adequately fund and broaden their methods of financing public education. Education financing should be shifted from property taxes to less regressive forms of taxation.