With sales tax rates at only 5-6% the amount of off the book sales from mom and pop stores is very large. With sales tax rates at only 5-6% the amount of off the book sales from mom and pop stores is very large. Up the rates to 20-30 and the level will rise tremendously
Not to mention the 40% marginal rates of business income/payroll/selfemployment taxes they evade on top of the 5-6% remittence of sales taxes collected from their customers.
But we wouldn't want reality of the current tax system to intetrfere with the fantasy that tax evasion occures only because of state sales taxes at 6% rates.
In short every incentive and more exists under the current federal income tax system. The overall economic incentive to evade taxes actually declines with the FairTax in place.
Besides, today the IRS must keep track of all earners...over 100 million people? Even with all the small businesses, there are far fewer than that...so it would reduce the number of folks to monitor, plus making it much more simple to monitor--hence cheating rates should actually go down.