William A. Alexander – 8/11/05

This page was last updated on August 11, 2005.

Close income-tax loopholes; William A. Alexander; Beaver County Times; August 11, 2005.

This is a rehash of at least two letters previously written by Mr. Alexander opposing the FairTax proposal. His first was entitled Don’t buy Bush’s free lunch and the second was entitled National sales tax is unfair.

Below is a detailed critique of the letter.

“I recently received correspondence from U.S. Rep. Melissa Hart concerning reducing the tax burden.

“She is supporting a bill (H.R. 25) that would eliminate the federal income tax and start a 23 percent national sales tax.”

[RWC] As in his previous letter, Mr. Alexander omitted the other federal taxes H.R. 25 would eliminate, such as estate (death tax), gift, and Socialist Security/Medicare taxes. This is such an obvious “mistake” I have to assume it’s a deliberate misrepresentation by Mr. Alexander. Indeed, without this error, Mr. Alexander’s tax percentage arguments fall apart.

“This will benefit the wealthy who save most of their income and hurt the rest of us who spend all we make and in some instances more than we make.”

[RWC] You’ll note Mr. Alexander never defines what he considers “wealthy.” In general, when folks with opinions like those of Mr. Alexander use the term wealthy, they mean someone who earns or possesses more than they. For example, if you earn $40,000/year, a person who earns $50,000 is wealthy.

If the wealthy save most of their income, what’s the purpose of being wealthy if you don’t spend a good chunk of it? If everyone except the wealthy “spend all we make and in some instances more than we make,” does this mean Mr. Alexander believes the vast majority of Americans aren’t saving anything for retirement?

In any case, Mr. Alexander failed to note H.R. 25 includes a monthly rebate (called Family Consumption Allowance in H.R. 25) to return the federal sales tax paid on necessities. The purpose is to alleviate the burden on low-income families.

“Working people don’t pay anywhere near 23 percent in federal income taxes. I calculated some numbers for 2004 income taxes for a married couple filing jointly using the standard deduction.”

[RWC] I love the use of “working people.” Apparently Mr. Alexander believes being a working person and being wealthy are mutually exclusive. The vast majority of the “wealthy” work hard for what they earn/own.

As noted elsewhere in this critique, the federal sales tax eliminates more than just the income tax.

“For the federal income-tax number on the W-2 plus any other declarable incomes, the net percentage of federal income taxes due are about: for total taxable income of $25,000, 3.6 percent; $35,000, 6.1 percent; $55,000, 9.35 percent; $75,000, 11 percent; $95,000, 13.95 percent; and $115,000, 15.9 percent.”

[RWC] This is a rehash from Mr. Alexander’s previous letter.

“With more dependents or higher itemized deductions, the percentages would be even lower. Think about adding a 23 percent sales tax on every item you purchase!”

[RWC] How does 23% compare to the taxes to be eliminated?

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.

“The justification for this is that the federal taxes are too complicated and people spend too much time filling in the forms because the tax code is now 20,000 pages. It is not complicated because of working taxpayers. It is complicated to create loopholes for corporations, special-interest groups and the wealthy.”

[RWC] I don’t know where Mr. Alexander gets his information, but time spent by individuals filling out their tax forms is not the driving force. I believe the primary reason is to help make our true taxation more visible to taxpayers.

Mr. Alexander is partly correct about the reason for income tax code complexity. He ignores, however, that there are so-called loopholes for everyone as I note below.

“The solution to make the income tax simple is to eliminate the loopholes. As to being too complicated, if our school system does not prepare its graduates to fill out their tax forms, possibly the problem is not the tax form.”

[RWC] I wonder if Mr. Alexander would approve of the elimination of the following loopholes: exemptions for dependents, deductions for mortgage interest, charitable donations, IRA deductions, childcare credits, medical expenses, et cetera. I don’t believe Mr. Alexander would accept a proportional (flat percentage rate) income tax with absolutely no deductions and/or exemptions for anyone.

“If you agree, please contact your representative and senators to stop H.R. 25.”