[chimera]

Would not the same arguments apply to a consumption tax? Income taxes are based on reported income. Likewise, consumption taxes would be based on reported sales. What if those sales were not reported?

My neighbor is a mechanic and does repair work for friends and acquaintances on the side. Cash only. He fabricates parts which adds value to the raw materials. Cash only again. No reporting of the value added or the labor. Would not an excessive consumption tax lead to more "underground economy" operations? I'm not talking about drug dealing and illegal gambling, just everyday work, selling and exchanging items instead of going to the store, that kind of thing.

[EternalVigilance]

You’re never going to totally eliminate tax evasion, no matter what system you choose.

But the fact is that the vast majority of retail transactions take place in legitimate retail stores, like the big boxes, etc. Such businesses have little to gain, and everything to lose, from fudging on something as basic as a simple sales tax.

[EternalVigilance]

By the way, under any decent RETAIL sales tax, none of the stages of adding value to products would be taxed.

[mmichaels1970]

My neighbor is a mechanic and does repair work for friends and acquaintances on the side. Cash only. He fabricates parts which adds value to the raw materials. Cash only again. No reporting of the value added or the labor. Would not an excessive consumption tax lead to more "underground economy" operations?

I would guess your neighbor is already "underground" right? I would guess he's not declaring the cash on his income taxes. So in this case, you'd have a wash in the underground economy. The income tax dodgers become sales tax dodgers.

The good thing, however, is that your neighbor is going to take the $200 cash down to AutoZone to pick up some cool new tools for his garage. So at least eventually that $200 ends up with a tax on it.

[DH]

Your neighbor who does not report his income still pays the consumption tax when he buys toilet paper, fuel and any other thing that is purchased from a commercial enterprise.

That’s why the consumption tax is better for the simple reason that there is no way to avoid paying the tax. The more you make...the more you spend....and you pay the tax.