and Bisq doesn't solve anything as far as fiat transactions, you are risking it the moment you do a bank wire.
Of course it does. The coins are in escrow before any fiat transaction is made. If Bisq solved nothing as you claim, it would have collapsed due to endless scams years ago.
If you have never had BTC in KYC exchanges, the gov does not have you as a "bitcoin person" on their records, so you don't want to be found using BTC to pay for stuff
If I go to a merchant in person and pay with my non-KYCed bitcoin, or if I use my non-KYCed bitcoin to buy a non-KYCed giftcard which I then spend in person, how are the government going to track that?
As a best practice I would avoid any problems, and by that I mean not showing up with these coins on either KYC exchanges or building using services that go along with your dox on each payment.
Correct. When faced with some centralized service which is actively attacking bitcoin by proclaiming some coins as "tainted", the rational response is not to let them attach your KYC to all your coins and submit to their endless surveillance and invasion in to your life. The rational response is to not use such a service and instead use an alternative which does not do any of this nonsense.