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In my previous posts, we looked at the tax plans of the two major candidates for President.  I will conclude this series with a look at the Libertarian party’s tax proposals.

Former New Mexico Governor Gary Johnson captured the Libertarian Party’s presidential nomination making him that party’s nominee for a second consecutive election.  Libertarians believe in an extremely limited role for the federal government.  The federal government, as they see it, should focus on two things:  “protecting our Constitutional rights and defending us from foreign attack”.  Libertarians would eliminate the majority of federal spending, abolish the IRS and do away with the income tax in favor of a consumption tax called the Fair Tax.

A national sales tax of 23% on new goods and services purchased has recently been proposed by the Libertarian Party.  To keep the tax from being too regressive, a “prebate” would be built in for those in lower income brackets.  This consumption tax would replace all income taxes (personal and business) and all payroll taxes including Social Security.  It is believed that this kind of tax system would unleash tremendous economic growth by encouraging work and business activity and spurring savings and investment.

How would all of this affect your finances?  An income tax of zero would definitely put more money in your pocket and encourage you to save more but this may not happen immediately.  The process of implementing such a radical change in tax law could not happen overnight and would likely involve a period of transition issues.  To give just one example, the treatment of untaxed capital appreciation in stocks or real estate would have to be debated.

Without a doubt, a Libertarian administration would be a game changer for the American public.  However, the reality is that their philosophy of government as it pertains to taxes, national defense and spending is outside the mainstream of popular opinion.  According to the latest poll numbers from Real Clear Politics, Johnson is favored by only about 7% of the electorate.  You should not expect a Libertarian president in this election cycle.


David K. Raye, CPA


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*First published on August 31, 2016