Wednesday, October 29, 2008

MN-01 : Davis needs more time to Study Taxes

Dr. Brian Davis, the Republican candidate in Minnesota’s First Congressional District responded to an inquiry from KEYC-TV regarding a national sales tax : “It’s a good idea in principle” adding that he needed to “study it more”.
That comment is just another example that Dr. Davis is too inexperienced to be trusted to represent the district in these critical economic times.

So what would a national sales tax do?
Representative John Linder (R-GA) first introduced a version of the Fair Tax in 1999 and each session thereafter including most recently H.R. 25, the “The FairTax Act of 2007.” Former First District Congressman Gil Gutknecht (R) was a co-sponsor and strong advocate. Currently, John Kline (R-02) is the most recent cosponsor. During the Republican primary, Governor Mike Huckabee was a strong supporter while Senator John McCain distanced himself from it although he spoke favorably about it earlier.

Here are the highlights of the legislation :
---- Imposes a national sales tax on the use or consumption in the United States of taxable property or services.
---- Sets the sales tax rate at 23 percent in 2009, with adjustments to the rate in subsequent years.
--- Directs the Secretary of the Treasury to allocate sales tax revenues among: (1) the general revenue; (2) the old-age and survivors insurance trust fund; (3) the disability insurance trust fund; (4) the hospital insurance trust fund; and (5) the federal supplementary medical insurance trust fund.

In short, payroll taxes including funding for Social Security and Medicare are eliminated … as are income taxes and estate taxes.

If this was such a good idea, why didn’t the Bush Administration and the Republican-controlled Congress move this legislation beyond simply introducing it ?
Obviously, it is too radical of a change.
Social Security and Medicare would be at risk if revenues from sales tax collection slowed up.
This would be a repeal of the progressive nature of income taxes; replaced entirely by a consumption tax. In these iffy economic times, where many families are delaying purchases, now is not the time to rely exclusively on a national consumption tax.

This would be a major change in America’s economic activity. There is no home mortgage deduction (which is cited in the Fairmont Sentinel’s endorsement of Dr. Davis) nor deductions for local property taxes, medical expenses, or charitable contributions. All the tax deductions that taxpayers have been accustomed to are gone.

All that said, it is incomprehensible that a candidate that has spent virtually a year campaigning for this office, cannot definitively tell voters if he favors a national sales tax.
Davis has voiced his skepticism of climate change, denounced mandates for automobile efficiencies and extolled that China is drilling off the coast of Cuba, yet he cannot comment on a tax policy change that has been written about for almost a decade.

The next session of Congress will have to address the national debt and operational budget imbalance while putting in place tax policies that are equitable and foster job growth. For Fiscal Year 2009, without the recent Wall Street bailout package, the federal deficit was $562 billion including the borrowing for the war. The national debt will have virtually doubled during the Bush years. Now is not the time for radical changes to our tax system.

The simple answer that Dr. Davis should have said was “No” to a national sales tax and a “YES” to PAYGO … but that would have meant that current Congressman Tim Walz is correct.

1 comment:

Anonymous said...

I agree with Senator Day who said that his impression is that Davis supported the Fair Tax and that his supporters would be very disappointed if Davis didn't support the Fair Tax. I don't understand why Davis doesn't just come out for the Fair Tax.

As for your analysis of the Fair Tax, there are a couple of points I'd like to make. First, let me start by saying I've been in favor of a flat tax (with high personal exemptions for lower and middle income individuals and families). That said, I think a case can be made in favor of the Fair Tax and, especially against those who support the corrupt federal income tax system we have today.

Other than the fact that Davis is such an incompetent candidate, somebody could make quite a bit of hay against those who argue in favor of keeping the current tax code which is some 6,000 pages long and which is also filled with loopholes and breaks for special interests.

Also, I think your argument about Social Security and Medicare is a red herring. For decades Congress put FICA revenues into the general fund and spent them on pet projects, etc. While we supposedly have a Social Security Trust Fund, a Congress could easily pass another law to raid those funds as well.

The Fair Tax has one other aspect, which many people aren't aware of. It offers every American a "pre-bate." The pre-bate is a refund equivalent to the Fair Tax paid on essential goods and services, also known as the poverty level expenditures. For example, if you are a family of four your monthly prebate would be $537.

Finally, the Fair Tax doesn't tax anything used. So used cars, used homes, used clothes and goods, etc. would go untaxed. I think there is a cogent argument to be made that the Fair Tax would be better for lower Americans than the current system. It's just that Brian Davis isn't competent to make such an argument.