William A. Alexander – 1/2/05

This page was last updated on January 2, 2005.

National sales tax is unfair; William A. Alexander; Beaver County Times; January 2, 2005.

This is at least the second letter written by Mr. Alexander opposing the FairTax proposal. His first was entitled Don’t buy Bush’s free lunch.

As I noted in my critique of Mr. Alexander’s first letter, I haven’t made up my mind about the “FairTax” proposal though I believe its promoters make some good points. The point of critiquing Mr. Alexander’s letter is to show the flaws in his knee-jerk “reasoning” and calculations.

Below is a detailed critique of the subject letter.

“In regard to calls for a national sales tax to replace the federal income tax:

“The published opinions on the required percentage for the national sales tax applied to everything people buy vary from as low as 25 percent to as high as 35 percent, depending on what, if anything, would be tax-exempt.”

[RWC] Not exactly. The FairTax web site estimates the tax rate would be 23%. I don’t know if that figure will ultimately prove correct, but I wanted to point out Mr. Alexander did not present the FairTax proposal’s estimate. Mr. Alexander also did not cite the sources of his information.

I don’t know if anything would be tax exempt. The FairTax proposal, however, deals with the issue of taxing necessities by providing a monthly “rebate” check in advance for taxes paid on “essential” goods and services. I put rebate in quotes because the amount of the rebate check is based on a formula, not on the actual amount of taxes paid on the essential goods and services.

“Even using the lower number, this change would raise the price of a loaf of bread by more than 50 cents, a gallon of milk more than 75 cents and a gallon of gas by more than 44 cents.

[RWC] Mr. Alexander ignores the fact that eliminating the federal income tax on businesses and the high cost of tax planning would reduce the cost of products and services. The FairTax web site estimates average product cost – before sales tax – would drop about 22%.

“The argument that causing everyone this level of pain to be able to tax some of what criminals buy is ludicrous.”

[RWC] No one claims this is a driving reason to support the tax. It is merely a potential by-product.

“No working person pays anywhere near those percentages in federal income taxes.”

[RWC] As will be mentioned again below, according to the FairTax proposal, the federal income-based taxes that would be eliminated include personal, estate (death tax), gift, capital gains, alternative minimum, Socialist Security, Medicare, and business taxes.

“The pro-national-sales-taxers act as if we pay the top percentage for our bracket on all of our income.

“I calculated some numbers for 2004 income taxes for a married couple filing jointly using the standard deduction.

“For the federal income tax number on the W-2 plus any other declarable incomes, the net percentage of federal income taxes (for total taxable incomes) due is about:

“$25,000, 3.6 percent.

“$35,000, 6.1 percent.

“$55,000 9.35 percent.

“$75,000 11 percent.

“$95,000 13.95 percent.

“$115,000, 15.9 percent.”

[RWC] In an incredible leap of faith, let’s assume these figures are correct. Even if they are understated, they help undermine Mr. Alexander’s premise as will be shown below.

“If you had more dependents or your itemized deductions were higher, the percentages would be even lower. We don’t pay 20 percent to 40 percent federal income tax rates.”

[RWC] I’m sure it’s only an oversight by Mr. Alexander, but his calculations included only the personal federal income tax. He excluded the effect of estate (death tax), gift, capital gains, alternative minimum, Socialist Security, Medicare, and business taxes.

Let’s use Medicare and Socialist Security taxes as an example. These taxes alone take 15.3% of a worker’s paycheck. Add this to Mr. Alexander’s numbers above and the taxes range from 18.9% to 31.2%. The direct and indirect effects of the other federal income-based taxes would drive these figures higher.

“I still fail to see how most people are going to be better off with the national sales tax that lets corporations and the well off pay little or no taxes.”

[RWC] Though Mr. Alexander likes to use the term “corporations,” all businesses would benefit from not having an income tax. This includes the “mom and pop” stores in your neighborhood. Mr. Alexander doesn’t want you to know this. Mr. Alexander also wants you to forget you pay business taxes anyway via higher costs for products and services. Ultimately, only individuals pay taxes.

Mr. Alexander seems to believe “the well off” would “pay little or no taxes” under the FairTax proposal. Exactly how would that happen? Does Mr. Alexander believe “the well off” hoard their cash and don’t spend it? Earth to Mr. Alexander; the more money people have, the more they spend. Who are we supposed to believe buys things likes expensive boats, cars, clothes, jewelry, et cetera?

“In America, we have the right to mention things we believe government should do or do differently. Winning a national election by 2 to 3 percent does not constitute a mandate, and we could still complain even if it had been won by 20 to 30 percent.”

[RWC] Gee, state Rep. Vincent Biancucci (D-15) claimed Pennsylvanians “overwhelmingly” elected Gov. Rendell with 53% of the vote. Is 53% overwhelming but 51% isn’t? The truth is neither is an overwhelming percentage, but the winner has an ethical mandate to try and deliver on his platform regardless of the margin of victory.

In any case, who said we couldn’t complain?