The Sales Tax Petard

For years, the web-based book seller Amazon.com had not been charging sales tax in states in which it did not have a physical presence such as a store. States do not have legal jurisdiction over enterprises that are not located within their territory, although Amazon and other companies have had relationships with affiliate companies, which makes the concept of a physical presence unclear.

Customers who do not pay a sales tax to the seller are supposed to pay a Ause@ tax that is equivalent to a sales tax, but they rarely do this, due to the absence of enforcement. This proves that most people do not consider a tax on goods to be a moral obligation.

Now the sales-tax-free era is coming to an end. Book store owners had long complained that it was unjust for them to pay sales taxes while web-based sellers were not charging the tax. In California and some other states, the sales tax rate is about ten percent, a substantial difference when the price of a book is high, and the books can be mailed at the low-cost media rate. Continue reading

A Libertarian sales-tax party?

Is the Libertarian Party becoming a sales tax party?  The past several LP candidates for president have favored excise taxes.  I don’t recall any of them declaring, “Taxation is Theft!”  Now we have former New Mexico governor Gary Johnson as a leading candidate for the LP nomination for president, having abandoned the quest for the Republican Party nomination.  His tax plan as a Republican was a national sales tax, and that remains his tax plan as a Libertarian.

The main organization pushing for a national sales tax calls it a “Fair Tax.”  That is excellent propaganda, but a sales tax is no more fair or just than a tax on wages.  A sales tax violates free trade, makes products more expensive, and indirectly taxes wages and other incomes.  The advocates claim that a shift from income to sales taxes would not raise prices, since the income tax already raises prices, but they are wrong, because much of the burden of a tax on wages is on labor.  A sales tax has about the same excess burden or deadweight loss as an income tax.  Income taxes punish savings, but sales taxes punish borrowing, and there is no logical reason to favor savings over borrowing.  Savings and borrowing should be voluntary individual choices not skewed by taxes or subsidies.

The “Fair Tax” plan exempts business purchases, putting the burden on households.  That invites massive tax evasion, as folks would claim to be buying stuff for a business.  The response of government would be a sales tax gestapo.  If you did not have a receipt for your purchase and could not prove it was for business, you could go to prison.

If the Libertarian Party becomes a sales tax party, it will be unpopular and get little support.  Historically, sales tax advocacy has been a political loser.  This may well be why Gary Johnson got so little support as a Republican candidate for president.  If the LP nominates a sales taxer, I for one will promote the Free Earth Party (http://free-earth.foldvary.net/) as a truly libertarian alternative.