You have got to understand that both an income tax and a sales tax depend primarily on the honesty of the seller.
You also have a buyers in the mix with a sales tax who are in a position to provide witness to the activity. Only the seller is held liable to remit tax in a retail situation, any one of those customers can be a revenue agent, or just plain pissed at the guy and turn him in.
Under the income tax, all it takes is one person not declaring cash income to evade the tax with high probablity of getting away with it as long as he keeps a low profile. With sales situations, there are many witnesses to the sale and high potential for discovery.
In a drug transaction, the dealer will not declare his income nor his sales. This illegal transaction will always escape the taxman.
Until he gets turned in by one or more of his customers looking for a plea bargain, or an undercover agent setting him up. High risk situation, requires high returns. Such activity is not engaged in for evasion of taxes. The profit margin is in the illegal goods not taxes evaded. Thus your hypothetical of the drug dealer does not apply to tax evasion schemes per-se they will occur regardless of the tax system in existance.
Flea markets where cash trasactions produce the potential for tax evasion and are often the goal of the transaction is a much better example. And for that situation and any blackmarket dealing the preceeding analysis applies as the only gain is in the profit to be gained over a legal activity is that arising from the marginal tax rate evaded.
You cannot be serious. I bought a set of tires from a legitimate looking business near my home, Mario's Tires. Mario gave me a receipt that indicates the sales tax. I have no clue if he remits the tax to the State of Texas. I assume he does and have no reason to report Mario to the state. Even if I were angry at Mario, what evidence would I have?
Under a sales tax of 30%, Mario has greater incentive to not remit taxes. Of course my receipt will still indicate I paid the tax. What shall I tell the taxing authority? Geezer, keep in mind that I am principled enough to want to avoid making a false accusation.