
Lying with statistics is an art. It requires not only numerical literacy on the part of the liar, but manipulating the audience’s lack of the same. After all, we are taught from an early age that numbers are factual. Two plus two always equals four. It’s only years later that a student can choose to learn otherwise. So, reading Fareed Zakaria’s op-ed in the Washington Post last week infuriated me.
Let’s start with this: I have not personally fact-checked every single statistic cited by Zakaria in his piece, but I’m fairly confident nothing he said is intentionally inaccurate. Lying with statistics is about sleight of hand, not blatant deception. In this case, the deception is rooted in context.
Zakaria’s op-ed is in support of a national sales tax and he relies on a couple of numbers and stats to support his call to action: $33 trillion of national debt, a relatively high marginal tax rate compared to other countries, and a relatively high percentage of income taxes being paid by high income earners. The point that I found particular enraging was the idea that a national sales tax would be fair as “[it would be] paid at the same rate by everyone, whether they earn $45,000 a year or $4.5 million. “
Again, I am not going to dispute a single number or statistic he cited in support of his argument. The national debt is $33.51 trillion. The US does have one of the highest marginal tax rates in the world. High income earners do pay the majority of total taxes. I will even concede that the majority of existing spending on social safety net commitments like Medicare and Social Security and spending of the military is untouchable for political reasons and new sources of income are necessary to reduce the deficit and tackle the national debt. I am going to argue that his use of statistics to support his arguments goes beyond persuasion and is deceptive.
Let’s start with the concept of a national tax itself. The national tax Zakaria proposes is the same Value-Added Tax (VAT) used in most other countries. He proposes a modest 5% tax. He does explain that a VAT is applied at each stage of the transaction – “Most countries call it a value-added tax, or VAT, because it is collected at each stage along the chain of production, rather than just once at the point of final sale” – but doesn’t explain what that means. What it means, in practice, is that each time the good is sold, the VAT is applied. The intermediary stages, such as when a manufacturer sells a product to a wholesaler, who then sells it to a reseller who then sells it to a consumer, are also supposed to be taxed as well. According to the Tax Foundation, those intermediary stages are typically credited back so that only the end consumer is taxed. The assumption is that the intermediaries don’t pass along that VAT they paid as part of the price they charge. If that assumption doesn’t hold – and how would that be determined since the intermediaries can and do include their costs and profit margin in the price they charge the next buyer – then the end consumer pays not only the end point tax, but some or all of the VAT applied along the way. For a $10 object passed from manufacture to seller to consumer – a single intermediary, the effective VAT can be 10.25% – 5% as it passes from manufacturer to seller ($10.50), then another 5% at the end point ($11.03).
But, let’s assume that businesses play by the rules and don’t pass on their VAT to the consumer. 5% sales tax isn’t terrible, right? I live in Nevada. The base sales tax, statewide, is 4.6% and counties and municipalities can and do apply additional sales tax. Every county in the state does; the rate in Las Vegas is 8.38%. Like Nevada, most states do apply a sales tax:

So, would VAT apply in lieu of state and local sales taxes or in addition to? As some states rely heavily on sales tax, it is more likely that a national VAT would be applied in addition to the existing sales taxes. This would raise the effective sales tax rate to nearly 15% percent in the five states with the highest current tax rates. Keep this in mind as we look at the most enraging part of Zakaria’s analysis: the tax burden borne by high income earners.
Do high income earners really pay more? Yes, they do. The way the tax code is structured, high income earners face a higher marginal tax rate on their income. Welcome to tax brackets; higher earners are taxed at a higher rate in their income. Let’s say you earn $150,000 in 2022. Assuming you are filing as single with no dependents, when you files taxes for that year you’ll be in the 24% tax bracket where, before deductions, you would owe just shy of $30,000, or 20%, in taxes for the year. if you earned the median household income in the US for 2022, $74,580, you would fall into the 22% bracket, and owe, before deductions $12,024 – or 16%. However, that extra $75K the high earner brings in, even after paying an extra $18,000 in taxes – before deduction – still leaves them with more that $50,000 a year to spend. The increased tax burden on higher earners is why Zakaria correctly calls the US tax code progressive.
However, this is taxes on income. Non-income earnings, such as capital gains, are taxed very differently. For both of the above examples, the rate on realized capital gains is 15%. A capital gain is when something of value is sold. For most of us, the most likely time we would ever see this is when we sold a home. If we realized a profit from selling a home, that profit would be considered a capital gain and, in our examples, be taxed at 15%. But what if you never sell your home? What if it just gains value that you can borrow against through HELoCs (Home Equity Line of Credit) or refinancing? Turns out, nearly every big mortgage firm will tell you that you can dodge the capital gains tax by cashing out value by refinancing. This is just one example of additional funds that are available to higher earners that are not taxed as income and evade the goal of progressive income taxation. Other examples, just in the capital gains section, include stocks and investments.
This ability to access funds outside of standard income is something that those other countries Zakaria cites with lower marginal tax rates crack down on much more than the US does. Denmark has the highest capital gains tax rate in Europe at 42%. Sweden’s is 30%. Singapore doesn’t tax capital gains, but the cost of living is very high – about 80% of the cost of living in New York City. The city is also known as a tax haven for billionaires. Maybe there’s a reason that high earners live in the US despite how “in all those cases, by the way, they would get universal health care and high-quality public education from kindergarten to universities.”
At this point, we can see that high earners do face a disproportionate tax burden on their income, but that burden still leaves them with far more funds than the median household, which they can use to invest in assets that allow access to greater funds and, when divested, are taxed at far lower rates than their income. But what about the idea of fairness? Zakaria rightly states that Democrats consider sales taxes as regressive. In the earlier example of how VAT could be applied, the sales tax increased the price of the overall good. The reason sales taxes are regressive is because lower income earners spend a greater proportion of their overall income on taxable goods and services than higher income earners. Let’s take our median earner and high earner again. We’ll keep things simple – let’s say they both spend $50,000 of their income on taxable goods and services with a 5% sales tax. So, they both spend $2500 on sales tax. For the median earner, that’s 3.4% of their overall earnings, 2/3 of which they spent on goods and services. For the high earner, it’s 1.67%, or half the burden, and they still have the median earner’s income to spend. For lower income earners, that bite is proportionally larger. Econ 101 tells us that taxes inflict a deadweight loss on both producers and consumers. While that loss is miniscule for a high earner, for a lower income earner, that loss is much larger and can and will change spending patterns. But it’s applied fairly, right?
Nothing Zakaria said was untrue, but the manner in which he presented the information is deceptive in its burden to lower income earners and requires a good deal of work to unravel into a more nuanced understanding. By avoiding discussion of this increased tax burden and declining to even mention the use of sales taxes in most states, his argument is easily refuted. But he does make a valid points about the need for additional revenue to address deficit spending and the growing national debt as well as the politically untouchable nature of the majority of federal spending.
What’s the alternative? There are no easy answers. A national sales tax may be needed to help increase national income to cover spending commitments. However, increasing taxes on assets, capital gains, and, yes, raising taxes higher on higher income earners should also be on the table. All ideas to be considered, right alongside painful spending cuts.


















