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Governor Gary Johnson, the Libertarian presidential nominee, has described his tax policy on his own website as follows:

Governor Johnson advocates the elimination of tax subsidies, the double taxation embodied in business income taxes, and ultimately, the replacement of all income and payroll taxes with a single consumption tax that will allow every American and every business to determine their tax burden by making their own spending decisions. Taxes on purchases for basic necessities would be “prebated”, with all other purchases taxed equally regardless of income, status or purpose.

The elimination of all income taxes and payroll taxes sounds like a dream come true. However, any form of taxation is theft, and each comes with its own drawbacks. In the case of the FairTax advocated by Governor Johnson, here are some of the issues:

  • The FairTax is a consumption tax set at 23% on all goods and services for personal consumption. If calculated prior to the application of other local sales taxes, this would effectively bring us to a national sales tax of approximately 30%. So thirty cents out of every dollar in our pockets would end up in government hands, if we chose to spend the money. This would curtail spending. and it very well might have a drastic effect on the economy.
  • Because the tax is not only on goods but also on services, taxpayers might have to pay it on healthcare, childcare, car repairs, and any other service that they wish to get from another person. This in turn would reduce the number of people employed in any of these professions, as less money would be available to consumers to pay for the services. Imagine someone undergoing cancer treatment having to pay twenty-three percent of all their expenditures directly to the Federal government!
  • The pre-bate portion of the proposal, intended to allay fears that this would be a “regressive tax,” turns it into a progressive tax of the very worst sort. Any person with a social security card would be entitled to a base salary from the Federal government of what the Johnson administration believed is the minimum amount of consumption required in order to live. So, if for instance, the basic consumption is believed to be $12,000.00 per year, then each person having a social security card would be issued a check for $12,000.00 by the Federal government. Then everyone would pay the consumption tax on the remaining amount of money they spent. Whether the basic income is recouped by the government through taxing “the rich” on their consumption, or simply by inflating the currency to make up for that lost money, the purchasing power of all those who spend more than the basic pre-bate would be reduced in order to fund the “pre-bate.”
  • And speaking of social security cards, it is unclear whether Governor Johnson intends by this proposal to repeal the social security tax on income along with the income tax. If so, then the question may well be asked whether he intends to halt social security benefits at once. If not, then those of us who are not wealthy will have to reckon with both a social security tax on income and a 30% consumption tax. Americans of low to moderate income do not pay an income tax because the standard deductions and exemptions shield them from that — but they are all taxed for social security starting with their first four hundred dollars of earned income.
  • Because more and more purchases are made online from afar, a consumption tax on goods is likely to be avoided by buying from abroad, and in such an event, American businesses stand to suffer an even greater loss than we have seen in the ongoing recession.

Hopefully, Governor Johnson will soon make clear exactly what he intends by his tax platform and how these unwanted consequences might be avoided.

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