Once upon a time at one of my local Liberty on the Rocks meetups, I was talking to two minarchists about their proposed form of justified government. Since libertarians agree that taxes are collected through coercion (and that coercion is unethical), I wanted to know how they planned to fund their minarchy. While they were philosophically opposed to income taxes, to my surprise they viewed sales tax as permissible.

I wanted to know how a libertarian could justify a sales tax. They told me that a sales tax is voluntary: if you don’t want to pay the sales tax, you don’t have to buy that item.

They of course did say that essential goods, like food and clothing, should be exempt from any sales tax since those things are necessary for life. That was more or less the reason they gave for being against the income tax: you need to work in order in order to live. Restricting someone’s ability to earn a living is therefore wrong.

That seemed incomplete and much too subjective to me, so I tried to argue against sales taxes by saying that it is wrong for any uninvited parties to force their terms of a transaction on others. I remember holding a beer up and saying, “What business does anyone have involving himself in my purchase of a beer other than the bar and I?” Their repeated response was “Do you have to buy the beer?”

I wound up getting nowhere with them.

A better way to argue it would have been to evoke Henry Hazlitt’s idea of “seen” and “forgotten” from Economics in One Lesson. Most economic fallacies tend to only examine the “seen” actor and ignore the others that would have otherwise been involved. The most famous of these fallacies is the broken-window fallacy. The seen is the glazier who benefits from the broken window since he will be hired to repair the window. The forgotten is anyone to whom the money would have otherwise gone.

Saying that a sales tax is permissible is not a case of the broken-window fallacy, but only “seeing” the purchaser as relevant can easily lead someone to analyze the situation incorrectly. The forgotten party here is the seller. When someone sells something, they are earning income. There is no difference between a “sales” transaction and a wage—a wage is part of the exchange in the sale of one’s labor.

Let’s say I own a book store. Books are not generally considered essential goods, so according to my friends, there could be a sales tax imposed on them. But the sale of books is how I earn my income. So while the tax would be seen as a sales tax to my patrons, it is a tax on income to me. They said that a sales tax is okay but an income tax is not. An act cannot simultaneously be permissible and impermissible: permissibility is a discrete quality.

What’s important to take away from this is to remember not to unnecessarily complicate things. A transaction is a transaction. In order to justify treating one type differently than another, it is necessary to prove there are fundamental differences. There is no basis for the inconsistency otherwise.