I find this argument suspicious. It looks like a straw man to me. I am not an expert on state finances, but it looks to me that if state sales taxes were at the level of EU VAT (currently about 22%) and services were taxed as well, it would generate enough revenue to close deficit gap, no? Max?
I understand that some would cry foul about the "regressive" nature of such tax, but I think it is bogus too. People buy a a lot of schlock - schmy-pods, fashionable schmatas, flat screen tee-vees and so on. If they were taxed at 22%, people would simply buy less of that shit so their out of pocket expenses would not necessarily increase. It would help the environment too. The only thing it would hurt is corporate profits, but why should people like me give a flying fuck about them?
Wojtek