Any time libertarians discuss alternatives to income taxes, it seems inevitably, the so-called “fair” tax is mentioned. The fair tax is a value added tax that essentially amounts to a national sales tax. Before I discuss why I dislike the fair tax, I first want to discuss the reasons why I actually like the fair tax.
Firstly, there is a sort of voluntary nature to the tax on the consumer side of things. People do not necessarily have to buy things. It is argued that people can ultimately live off the land and make use of their own available resources if they so choose, and therefore would not have to pay sales taxes. This is, to an extent, very true. It is this voluntary aspect that I actually like.
In addition to the sort of voluntary nature of the fair tax, it also, in the US, would eliminate the need not only for income taxes from a citizen’s perspective, but would also eliminate some federal withholding taxes for businesses. Already, businesses are burdened with collecting the vast majority of all taxes in the US. While most people think of the IRS as auditing and collecting income taxes from individuals, most of its efforts are on going after businesses to collect and pay various federal taxes. Businesses have been forcibly conscripted into the service of the IRS, and business owners must make a decision to work for the IRS for free – or go to prison. So, it is good that the fair tax eliminates at least a portion of that burden.
But, is it really voluntary?
Many people do not have the space to grow their own food or raise their own livestock, and almost no one has the means to manufacture goods out of a spare room. Sure, most goods are conveniences that people could, if they had to, do without. But realistically, is it any real option to decide to go full-on hermit or cave man and give up everything you have to go off into the wilderness and live off the land? Probably not. That isn’t much of a real choice, and so this sort of taxation is not entirely voluntary on the part of consumers.
On the business side of things, there is absolutely nothing voluntary about being forcibly conscripted into working for the IRS. People don’t go into business to collect taxes. They go into business to fill needs and make money. It is a matter of moral nature, in my humble opinion. It is immoral to force people to do work of any kind against their will, much less without any compensation for doing so. With the fair tax, nearly all the burden of tax collection falls upon the shoulders of retailers – the vast majority of which are small, family owned, businesses who tend to have the least amount of resources to account for, collect, and then pay taxes that are not their own.
But, but, but… the greater good…
I hate “greater good” arguments. They imply collectivism and hold no promise for individual liberty. Libertarianism is supposed to be a philosophy that seeks to protect the liberty of the individual and not the collective. So, it baffles me when I hear people who say they are seeking individual liberty (other libertarians) give “greater good” arguments in regard to the fair tax. When confronted with the idea that businesses are still in forced servitude to the IRS under such a tax, I often hear even libertarians argue something like, “But, businesses are already collecting state sales taxes, and it’s for the greater good that the rest of us have a ‘voluntary’ tax.” In other words, it’s apparently alright for folks to impose their will onto a minority of people, because it serves what they have decided is a greater good. Just because a group of people is in the minority, it offers no natural right to others to forcibly impose servitude. It’s shocking to hear libertarians make such arguments.
In addition, some libertarians argue something like, “The fair tax eliminates some withholding taxes, so while it adds some to the duties of business owners, it reduces their burden in other areas.” It is difficult to make a logical case that replacing forced servitude with a slightly lower level of forced servitude eliminates the problem. In my experience, sales taxes are actually more of a headache for the retailer than withholding taxes. With sales taxes, I have to forcibly collect from all of my customers, while withholding taxes force me to only take money away from a few employees. But, I’d rather not be forced into the service of the IRS at all.
Protectionism in reverse?
Libertarians usually consider increased tariffs – or even the existence of tariffs – to be anti-free trade and protectionist in nature. But, if we place a new sales tax on goods purchased within the US, is there not perhaps a similar effect in the opposite direction? If tariffs imposed on imported goods is bad, then why are sales taxes on goods within the US any better? Do they not also create a situation where it is more beneficial for people to place orders with retailers in Mexico and Canada to have them shipped to their homes? In many cases, the shipping would be cheaper than the sales taxes. If you believe tariffs inhibit free trade, then surely you must also recognize that the effect of taxes on goods purchased domestically also inhibit free trade. Consumers shop in whatever manner saves them the most money, all other things being equal.
It’s a raw deal
The fair tax is not fair. While there is some manner of a component of voluntarism in it, it is ultimately anti-liberty to suggest people be forced into servitude for the greater good, and it is bad form to tinker with free trade. We have no natural right to force such a tax onto people, and it is something that will act negatively on society and inhibit free enterprise and capitalism.
So what would you do then?
While I would be more in favor of a flat tax on income, it is certainly not my top choice. The flat tax is not the only alternative to a better tax system than the one the US currently deploys. There is a smorgasbord of options for taxes, some of them voluntary and many of them not. There are lotteries and fee-for-service models, amongst many other systems. There are better ways of handling taxes than threatening business owners with prison time if they don’t work for the IRS free of charge. Please oh please, can libertarians drop this terrible fair tax idea? Let the Republicans have it instead.
Danny Chabino
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There’s a number of things wrong in this article. Some of them factually wrong, and some that could amount to semantics but deserving of clarification. It may not be the ideal libertarian system, but it does no one any good to misconstrue it when arguing for or against it.
For starters, the Fair Tax gets its name because it treats everyone the same. The traditional definition of fairness. Every legal resident not incarcerated gets to spend up to the poverty line tax free, and only pays the tax on new goods and services after that. It is often promoted as something of a voluntary tax, but that isn’t the goal. That idea came about most likely because the writers believed no one should have to fund the government before providing the basic necessities for their own families. In this aspect, it’s probably closer to a luxury tax than a voluntary one.
Why a sales tax? Face it, tax evasion has become a national past time. With the growing gig type economies (I.e. Uber and the like) where workers no longer receives a regular paycheck, evasion will only get worse. We can not rely on a fully voluntary tax system in the U.S. In terms of compliance, sales taxes have the least evasion. They capture taxes from everyone, including the shade tree mechanic to the drug dealers. No income tax, flat or otherwise, will ever be able to do that.
Can a sales tax be cheated? Sure, there will be some, but it won’t be as simple as importing from across the border. For one, those products would be taxed as part of the importing process. It’ll be logistically impossible for massive black markets to pop up. And you certainly won’t convince retailers to let you escape it, because they would be the ones taking all the risk with no reward.
Which brings me to the next errors: Serving the IRS free of charge. For one, the IRS is fully eliminated. All of the administration and enforcement powers are distributed among the states, the Feds, and the Social Security Administration. There is no threat of individual audits, no government intrusion into your private financial life, no forced withholding, no civil asset forfeiture… No single all powerful agency playing judge jury and executioner, not even an “IRS Lite.” Second, the retailers wouldn’t collect and remit the tax for free. It is unfortunate that someone has to do the dirty work, so to speak. They would be paid 0.25% of the taxes they collect and remit to the states for their efforts, and the states are paid the same for what they collect and remit to the feds. For what it’s worth, I’ve heard from many retailers that say they much prefer doing their state sales taxes over the income tax. If you’re not a public retailer, only selling to other businesses, then you have no tax collections to deal with period.
The article mentions eliminating some of the withholding. Yes and no. In the grand scheme, there would still be state withholding unless they enact something similar to a Fair Tax (which is expected to happen for the most part, as they would no longer have Federal income tax regulations to base state income taxes on). Since the Fair Tax is a Federal only program it should be noted that it eliminates all Federal withholding. No more personal income, corporate, and FICA taxes to withhold or comply with (in addition to removal of all other income taxes such as gift and estate taxes). The Fair Tax is a full repeal and replacement of the income tax system, and the 16th Amendment.
If people reading through this still don’t care for the Fair Tax because of a philosophical reason, so be it. I’m only putting this out here so you can make a more fully informed choice on the matter.
There’s a number of things wrong in this article. Some of them factually wrong, and some that could amount to semantics but deserving of clarification. It may not be the ideal libertarian system, but it does no one any good to misconstrue it when arguing for or against it.
For starters, the Fair Tax gets its name because it treats everyone the same. The traditional definition of fairness. Every legal resident not incarcerated gets to spend up to the poverty line tax free, and only pays the tax on new goods and services after that. It is often promoted as something of a voluntary tax, but that isn’t the goal. That idea came about most likely because the writers believed no one should have to fund the government before providing the basic necessities for their own families. In this aspect, it’s probably closer to a luxury tax than a voluntary one.
Why a sales tax? Face it, tax evasion has become a national past time. With the growing gig type economies (I.e. Uber and the like) where workers no longer receives a regular paycheck, evasion will only get worse. We can not rely on a fully voluntary tax system in the U.S. In terms of compliance, sales taxes have the least evasion. They capture taxes from everyone, including the shade tree mechanic to the drug dealers. No income tax, flat or otherwise, will ever be able to do that.
Can a sales tax be cheated? Sure, there will be some, but it won’t be as simple as importing from across the border. For one, those products would be taxed as part of the importing process. It’ll be logistically impossible for massive black markets to pop up. And you certainly won’t convince retailers to let you escape it, because they would be the ones taking all the risk with no reward.
Which brings me to the next errors: Serving the IRS free of charge. For one, the IRS is fully eliminated. All of the administration and enforcement powers are distributed among the states, the Feds, and the Social Security Administration. There is no threat of individual audits, no government intrusion into your private financial life, no forced withholding, no civil asset forfeiture… No single all powerful agency playing judge jury and executioner, not even an “IRS Lite.” Second, the retailers wouldn’t collect and remit the tax for free. It is unfortunate that someone has to do the dirty work, so to speak. They would be paid 0.25% of the taxes they collect and remit to the states for their efforts, and the states are paid the same for what they collect and remit to the feds. For what it’s worth, I’ve heard from many retailers that say they much prefer doing their state sales taxes over the income tax. If you’re not a public retailer, only selling to other businesses, then you have no tax collections to deal with period.
The article mentions eliminating some of the withholding. Yes and no. In the grand scheme, there would still be state withholding unless they enact something similar to a Fair Tax (which is expected to happen for the most part, as they would no longer have Federal income tax regulations to base state income taxes on). Since the Fair Tax is a Federal only program it should be noted that it eliminates all Federal withholding. No more personal income, corporate, and FICA taxes to withhold or comply with (in addition to removal of all other income taxes such as gift and estate taxes). The Fair Tax is a full repeal and replacement of the income tax system, and the 16th Amendment.
If people reading through this still don’t care for the Fair Tax because of a philosophical reason, so be it. I’m only putting this out here so you can make a more fully informed choice on the matter.
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