Why Are Libertarians Indifferent About Small Business Taxes? – Red Dirt Liberty Report


It’s that time of year when income taxes are at the forefront of most Americans’ minds. Libertarians, in particular, are shrieking as they are filing their returns, “Taxation is theft!” It’s like a single primal scream echoing across the United States.

Yet, as libertarians focus their attention on the unfairness of individual income tax and the extortive nature of it, they make no noise at all about the even more extortive nature of the tax burden on small business owners. It’s all theft. But as libertarians would ball up their fists and screech about an individual having to pay thousands of dollars in income taxes, they barely take notice of a small business owner who has to file bankruptcy because he can’t pay income taxes when he might not even had made any money.

People who receive a W-2 form from an employer who withholds their personal income taxes really don’t think about, or don’t know, that people with their own business might be losing money but still have to pay corporate income taxes. On top of this, individuals who receive paychecks rarely consider the dozens of taxes small business owners might have to pay in addition to the ones individuals pay.

I don’t want to point a finger at the whole movement, but even libertarians seem to yawn about small business tax burdens that are larger and even more burdensome and unfair than individual ones. Some even suggest that we should end their personal income tax burden in favor of adding one more tax burden to small businesses in the form of a national sales tax.

The way the US taxes its small business owners, in addition to the way it enslaves them as unpaid employees and tax collectors of the government, represents one of the most significant forms of crony capitalism. Libertarians love to rail against crony capitalism. Yet, they aren’t very vocal on this issue.

Larger businesses have the resources and economy of scale to deal with collecting, accounting for, and paying the “taxes in trust” that are required of them. For example, while most states do not go after small online retailers, technically every retailer – regardless of size – is required to collect and account for sales taxes incurred in any jurisdiction in the US. It is the responsibility of the retailer to know the tax rate in each and every taxing jurisdiction in the US, and monthly sales tax returns are required to be filed in every state with each amount listed for each appropriate jurisdiction (i.e. a different amount for every city). While most often states don’t go after smaller retailers, they can be arbitrary about the ones they do decide to go after. If they believe they can collect enough money to justify it, they will go after any business.

Other taxes in trust include withholding taxes coming from employees’ paychecks, both state and federal. While individuals pay property taxes, businesses must also pay them on their inventory and fixtures. They also have to pay various franchise fees and other state taxes that individuals don’t have to pay. Unlike individuals, small business owners sometimes might have income taxes even in cases when no money was made.

Let’s say that your employer holds part of your pay for a year, but then you have to pay taxes on it anyway, even though you didn’t receive it. That’s a little bit similar to what some business owners experience. In an oversimplified example, let’s say a business owner buys 10 gadgets for $100, for a total cost of $1,000, then he sells 3 of them for $150 each. He now has $450 in the bank. The way most people would think of their income as an individual, this person lost $550, because he has 7 gadgets he couldn’t sell. However, the way state tax authorities and the IRS see it, the business owner has made a profit of $150 and must pay income taxes on that amount, even though he doesn’t have any money. You can say he made a bad business decision and has to pay for it, but tax is theft, bad business decision or not.

Large businesses that have been around for a while don’t experience these issues in anywhere nearly as close to as devastating a manner. It creates a barrier to entry for new businesses to compete. In order for capitalism to function properly, government cannot advantage some businesses over others. There needs to be free markets with open competition. When a business fails, it should be because it was a bad business, and not because people thought it was okay to ignore the tax burdens small businesses face. Libertarians, don’t be selfish and only consider things that directly affect you. Just because the government is stealing from someone else doesn’t mean you should be any less concerned or any less vocal about it. Small business owners are being robbed even more than you.

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Danny Chabino

Danny Chabino has a background in operating small businesses. He has been involved in managing and/or owning the operations of multiple retail establishments, a sub-prime lending company, a small insurance company, a small telemarketing venture, and insurance consulting. In addition to these activities, he also has spent many years managing investments in stocks and stock options as a successful trader. He is the married parent of two adult children, living as a proud lifelong Oklahoman and a part-time redneck. Danny writes for the enjoyment and pleasure of sharing ideas and for the love of writing itself. His opinions skew libertarian, but he enjoys hearing open debate and listening to or reading of opposing ideas. As an odd confession, he personally detests politics, but enjoys writing about political ideals and philosophies.

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