the FairTax does nothing to tax the underground economy;
Incorrect, as I'll show.
the FairTax will encourage a shift from legitimate economic activity to underground economic activity; no currently underground activity will be shifted to the legitimate economy.
If we have to accept the first part of this as true, then the second part is equally false. There is plenty of current underground activity that would be shifted to the legitimate economy -- specifically, cash-under-the-table payments that currently avoid income and payroll taxes will be entering both the legitimate and illegitimate economies, so you can't say that current illegal activity under the current system will not be captured under the NRST.
All the FairTax does is shift the point of taxation from money entering the underground economy to money exiting the illegal economy.
Nonsense, see above. You're using a very artifically narrow view of "illegal economy" in order to ignore the facts that destroy your argument.
All the money that enters the illegal economy is now taxed ... even if it subsequently leaves the US. Under the FairTax, all the money entering the illegal economy will be untaxed, and if it leaves the US will be NEVER taxed.
Again, a fair amount of the money currently entering the illegal economy is currently untaxed. And while its true that money earned in the US under the NRST would not be subject to the NRST if it leaves the country, likewise, money entering the country to be spent here that wasn't earned in the US would be subject to the NRST.
All that aside, we also get the case of the illegally-paid worker, who, in many cases, is not a legal resident anyway. Anything they spend for food, housing, etc., will be subject to the NRST, but these illegals do not get the FCA, and so have an effective rate equal to the marginal rate. Works for me.
But in the long run that may very well be a problem. Under the fair tax everyone can claim a bigger income every year that will entitle them to get a bigger social security check. Right now I only claim a marginal income and get most of my earners through my S-crop to avoid paying too much in social security taxes. Under the fairtax, I will max out my stated wages to qualify for more Social Security benefits without having to pay out additional money. There is no downside to claiming larger incomes and greatly enlarging the debt to the social security program.
When the Executive pays the illegal gardener under the table, he pays him from fully taxed income.
Under the FairTax, the executive's UNTAXED income will pay the illegal gardener (and no, he won't pay any FairTax on that transaction.) If the gardner then sends 20% of his income to Mexico, that 20% forever escapes taxation. Of the rest, the illegal is UNLIKELY to spend all of it on taxable items ... there is a thriving underground already for all sorts of goods and that won't change.
To the extent that the illegal's costs are increased by price increases from the FairTax, he will be incentivized to go underground for what used to be mainstream purchases.
All of the illegal's mainstream purchases are ALREADY in the legitimate economy today, and as such are already included in the FairTax tax base; all of his underground purchases are STILL NOT in the FairTax tax base ... they're still underground. So, no previously illegal activity is captured under the FairTax. All that happens is that the point of taxation shifts.
If ANY of the currently mainstream consumption activity goes underground, the FairTax is in revenue trouble. The likelihood of that happening rises dramatically as the tax rate increases ... a fact which FairTax supports ignore.