No new activity is captured (and all the FairTax literature agrees.) The point and method of collection are merely changed.
The effect on the illegal consumer of legal goods is to raise the price of the illegal goods without any increase in income ... illegals don't get the benefit of receiving formerly withheld income and payroll taxes ...
As the relative cost of making taxed legal purchases rises, the incentive to move those transactions underground increases; that decreases the tax base and lowers overall tax revenue.
But there is a huge difference between what happens today and what would happen under the fairtax here. Today when someone makes a legal transaction with funds derived from illegal activity he pays only those taxes and compliance cost that are embedded in the price of the product or service he is purchasing and is making that transaction with funds which are, up to that point, completely untaxed while someone who earns his income from legal activity is making that exact same transaction with funds from which income tax, social security tax and Medicare tax have all been removed before he gets the opportunity to make the transaction. That would NOT be the case with the fairtax as the source of ones earnings would then be irrelevant.
The difference is that the legal income from which the illegal activity is paid is now taxed before enter the illegal economy, but under the FairTax it will not be taxed.
I beg to differ. The fellow who paid for the illegal activity may well have paid all of the taxes on HIS income but the person to whom he pays this money certainly DOES NOT go find the IRS and pay his taxes!
No new activity is captured...
I beg to differ. See above.
(and all the FairTax literature agrees.)
I don't believe that to be correct either.
The point and method of collection are merely changed.
I don't that is so a minor thing as you are trying to portray it.
The effect on the illegal consumer of legal goods is to raise the price of the illegal goods without any increase in income ...
Did you mean for this to read:
The effect on the consumer of legal goods who earned his money through illegal activity is to raise the price of the illegal legal goods without any increase in income ...?
If so I wouldn't worry to much about that as he is paying with untaxed income and the prices are not going to be that much higher in any cas once all the hidden costs of the income tax system are wrung out.
illegals don't get the benefit of receiving formerly withheld income and payroll taxes ...
As they certainly should not since they have not PAID any of the taxes.
The following comes directly from The FairTax FAQ. I have underlined the portion which shows you to be in error on this point.
Tax criminals - don't make criminals out of honest taxpayers.
Today, the IRS will admit to 25 percent noncompliance with the code. FairTax.org will be generous and simply take the position that this is likely a conservative estimate of the underground economy. However, this does not take into account the criminal/drug/porn economy, which equally conservative estimates put at one trillion dollars of untaxed activity. The FairTax does tax this - criminals love to flash that cash at retail - while continuing to provide the federal penalties so effective in bringing such miscreants to justice. The substantial decrease in points of compliance - from every wage earner, investor, and retiree, down to only retailers - also allows enforcement to concentrate on following the money to criminal activity, rather than making potential criminals out of every taxpayer struggling to decipher the current code.