I understand your point, however, I also realize that this dynamic is present in our own system. The people who work the system now come up with ways to account as much of their spending as possible as business expenses, including the cars they drive, justifying a vacation as being a busniess trip, etc. I don't see how the FairTax will increase or decrease that practice. It'll be the same game we have now... "How can I make this purchase a business expense?"
It at least doubles the incentive (30% v 15%) and would attract more people into forming a corporation just for the purpose of tax evasion.
I do not think the 23% comes close to accounting for this avoidance. That is my concern (one of them, anyways).
"Do you agree that one-man "corporations" will increase dramatically beyong the number of "S" corps that exist today to take advantage of the tax exempt status?"
"I understand your point, however, I also realize that this dynamic is present in our own system. The people who work the system now come up with ways to account as much of their spending as possible as business expenses, including the cars they drive, justifying a vacation as being a busniess trip, etc. I don't see how the FairTax will increase or decrease that practice. It'll be the same game we have now... 'How can I make this purchase a business expense?'"
OHelix makes a good point, as usual, but I would add that the resources being freed up to enforce compliance would be enormous. If you accept the number of pages as a rough proxy for the complexity of the system, we are talking about something like a 98% reduction in complexity of the tax system and about a 90% reduction in the number of points of collection/enforcement. That means that even with a dramatic reduction in the resources committed to enforcement, we could do a much better job of policing the system than we do now.
There will certainly have to be some monitoring of corporations buying "stuff" for personal consumption. There are certainly ways to do this with far fewer resources than we now allocate and still get significantly better coverage.
The assumption that there will be a proliferation of corporations popping up to funnel personal consumption items through and avoid paying the sales tax is founded on the belief that the risk-reward ratio will encourage that behavior. I am of the opinion that if we do the job properly and evaluate the new risks carefully in terms of allocating enforcement resources, the risk-reward ratio will say to American consumers: This just isn't worth it.
Does a sales tax present compliance challenges which are different than an income tax? Absolutely.
Are these challenges so great that we should abandon the idea of stimulating our economy and freeing up our citizens from this horrid system? Certainly not. If we can figure out how to bring democracy to the middle east, we can certainly figure out how to enforce a sales tax - and with fewer resources and less intrusion than we have in the current system.