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National sales tax wrong for Alaska

Posted: August 6, 2014 - 2:53pm

Mead Treadwell recently endorsed the national sales tax at a debate. This national tax would have a major negative impact on Alaska, and Treadwell’s support for it raises serious questions about his judgment.

Treadwell’s national sales tax would be a 30 percent tax on top of the existing sales price of goods and services.  The national sales tax would apply to just about everything: food, gasoline, medical care, travel, energy costs, even interest payments on credit cards. It is hard to even imagine how much that would add in expenses for the average household.

Groceries already are too expensive in rural Alaska.  Treadwell’s national sales tax would add 30 percent on top of prices that already are too high. You could pay $3 in taxes just for a gallon of milk in some rural communities.

The national sales tax would make it significantly more expensive to get to work and to travel to hub communities. Add 30 percent to the cost of gasoline and Alaskans living in rural areas will pay approximately $2-$3 more per gallon, because the national sales tax would come on top of existing gas taxes. The national sales tax would affect airline tickets too, adding hundreds of dollars to most tickets within Alaska.

The tax also would raise the price of four wheelers, boats, and snowmachines. If you’re buying an $11,000 snowmachine it would cost $3,300 more in taxes, and you’d have to pay a 30 percent tax on the price of shipping the snowmachine from Anchorage.

It doesn’t have to be this way. Elections are all about choices. I know I’m not voting for anyone who would support a national sales tax. Let’s make sure Mead Treadwell’s national sales tax never becomes a reality.

Mike Wenstrup

Chair, Alaska Democratic Party

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Kicker
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Kicker 08/11/14 - 06:28 am
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When Politicians Lie, You Know You're Right

Mr. Wenstrup has deliberately, and with full knowledge of the truth, attempted to mislead and misinform the public regarding the FairTax, and those who support it.

For instance, he misleads readers by implying the FairTax will increase the price of goods and services by 30% when it is added on top of the current prices.

What he doesn't tell you is that the FairTax is added AFTER the hidden taxes currently incorporated into goods and services are removed. These hidden, or embedded, taxes currently total about 22% of the total cost we pay everyday. Under the FairTax, they are removed, and then the FairTax is added, so prices may rise a small amount, but no where near what Wenstrup has tried to tell you.

Wenstrup also fails to mention that workers will be taking home their whole paycheck, which, for the average family, will mean an increase of about 15%. He also fails to mention that the average family will also see a refund of taxes paid on purchases below the poverty level of about $7,200 per year (Others may see more or less depending on family size.)

So, the average family will see about a 25% increase in their disposable income, and will see prices rise about 8% to 15%. For those, like Mr Wenstrup, who have trouble with numbers, that means the average Alaskan will have more disposable income and greater purchasing power.

Mr. Wenstrup also failed to mention that, unlike the system today, where hidden taxes are included in everything, the FairTax only applies to new goods and services. Buy a new snowmobile, you pay the FairTax. Buy a used one, and you pay no federal tax at all!!

Mr. Wenstrup also fails to mention that, under the FairTax, the IRS is disbanded, and tax collection is handled by the State, instead of some faceless bureaucracy in Washington.

Mr. Wenstrup is lying about the FairTax because he knows it can be a major factor in this election. He knows Alaskans are smart enough to support a major reform like the FairTax if they know the truth, so he's doing everything he can to keep you in the dark. Don't play his game. Learn the truth.

To learn more, visit www.ohfairtax.org

eaglek
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eaglek 08/13/14 - 06:28 pm
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National sales tax wrong for Alaska article

When I read Mr. Wenstrup’s comments I recalled a quote by my favorite humorist-Will Rogers: “You better watch a man who says he’s boss in his house, if he’ll lie about that he will lie about other things”. I prefer to be polite - Mr. Wenstrup omitted some important truths.

Mr. Wenstrup says 30 percent will be added to about everything you buy. Not true for several reasons - the first of which is that the FairTax® applies only to new goods and services. Goods are taxed only once. There’s no tax on used goods. You can call the FairTax® a 30% rate if you choose to calculate the rate the same as state and local sales taxes are calculated. We call this calculation method “tax exclusive”. Sounds reasonable, since the FairTax is a sales tax. However, the FairTax® replaces income taxes, which are calculated on a “tax inclusive” basis. If you simply ignore that difference in calculation methods (as Mr. Wenstrup apparently wants to do), you introduce a bias that favors income taxes. Say you earn $1.00 in income or you spend $1.00 on consumer goods. If $.23 is withheld from your paycheck, you divide the $.23 by $1.00 and get 23%. If you buy something and the after-tax price is $1.00 after adding a $.23 sales tax, the rate is calculated at 30% ($.23 divided by $.77). So even though in both cases you are paying a $.23 tax and get to keep 77 cents, one rate is higher than the other simply based on the calculation convention. Since no one else has proposed replacing income taxes with sales taxes, we are the only ones who have had to “get in the weeds” in this manner. The bottom line is that FairTaxers are happy to calculate the FairTax using either the tax inclusive or the tax exclusive method. However, we insist that the income taxes we are replacing be calculated the same way. Anything else would be deceptive and not conducive to a debate on the merits. That is what we all want, isn’t it?

Another very important aspect of the pricing discussion is the elimination of the embedded taxes of the current system. Dr. Karen Walby, PhD, has estimated that 12.5% of the production costs of U. S. produced goods are accounted for by corporate income taxes, the employer’s portion of payroll taxes and the enormous compliance costs of the current system. These are all costs of production in the U. S. which would be eliminated up and down the supply chain with the FairTax. When this 12.5% is eliminated, U. S. producers can lower their prices to end using consumers by that amount and still realize roughly the same profit margin that they now obtain. Therefore, we believe that the pre-tax prices of U. S. produced goods would decline by that 12.5%, softening the blow of the newly imposed sales tax. However, since foreign produced goods would not benefit from the elimination of the current U. S. tax system, they would increase in after-tax sales price by roughly the full amount of the new sales tax – call it 23% or 30% as you will.

The net effect of all this is that US produced goods will increase after-tax by about 14% when calculated tax exclusive. Imports, on the other hand, will increase by about a full 30%. Therein lies one of the FairTax’s biggest economic benefits – the price shift that will make U. S. produced goods more competitive than their foreign competition. A similar in effect but different in mechanics shift would take place in foreign markets – U. S. goods would enjoy a favorable pricing shift that would significantly improve their competitive position against their foreign produced competition.

This is quite possibly the FairTax’s® biggest economic benefit. It increases the demand for US produced goods around the world while eliminating taxes on US production, which would create a massive inflow of capital into the country seeking good investment returns. When you think about the economic impact of shifting the purchasing decisions of billions of consumers around the world in your favor, and the increased availability of trillions of dollars in fresh new capital, the net effect would be enormous. This is essentially why every economic study that has been performed on the FairTax shows the US economy growing at a faster rate and unemployment being significantly reduced than under a continuation of the current system.

But what about those higher prices? Won’t that work a hardship on consumers? Let’s examine how the FairTax® would really affect rural Alaskans, in fact all Alaskans. First, they will no longer be subject to payroll taxes (6.25% FICA plus 1.45% Medicare) for a total of 7.70%. If their annual income exceeds $10,000 or more, they will no longer have to pay a 15% marginal income tax. So they could realize about a 23% pay raise. The employer will no longer have to pay the 6.25% FICA share so they could choose to give the employee 6.25% pay raise. So, the employee could even experience about a 30% increase in take-home pay.

Mr. Wenstrup also neglected to mention the Family Tax Refund Allowance called a Prebate. The prebate is dispersed at the beginning of each month to ensure no American pays federal taxes on spending up to the poverty level so EVERYONE can buy basic essentials free of tax. All families get it. The amount is determined by the number of persons in the household. For example: The monthly rebate for an Alaskan family of 4 is $754. A family of 4 could spend up to $39,320 annually without paying a penny in federal taxes. Even a family spending at twice the poverty rate for his size family would pay an effective rate (based on consumption) of half the nominal rate or 11.5%. An added benefit for Alaskans - no federal taxes due on their Permanent Fund Dividend.

Passage of the FairTax® bills (House and Senate) would result in a major boost to the Nation’s economy, create millions of new jobs, reduce the rolls of the unemployed and remove the shackles of an onerous tax system. The 21st century has been called the globalization century by astute observers of world-wide economic trends. That means that the increased level of global competition that we have already seen is merely a harbinger of things to come. The longer we cling to an outmoded and inefficient mechanism for collecting the taxes that our government needs, the further behind we fall in the global race. The Democrat party has a distinguished history as the champion of working folks. The FairTax is a non-partisan proposal, developed by surveying the American people across the political spectrum to find out what they wanted in a tax system. We FairTaxers welcome Democrats to the movement to modernize our tax system and ensure that we do everything in our power to ensure that the United States of America competes globally in the 21st century and remains the land of freedom and economic opportunity for all.

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