But what about when the drug dealer buys a loaf of bread? Well, that is not the underground economy. That is the legitimate economy. The bread transaction will be captured by a sales tax, VAT or flat income tax.
I don't think the point of the FairTaxers is that the underground would not be able to avoid taxation in terms of collecting tax. It's that under the current income tax system they pay NO tax, under the FairTax, they will at least have to share the tax burden when they engage in the legitamate economy. It doesn't FIX the problem, but it improves it to some degree.
"I don't think the point of the FairTaxers is that the underground would not be able to avoid taxation in terms of collecting tax. It's that under the current income tax system they pay NO tax, under the FairTax, they will at least have to share the tax burden when they engage in the legitamate economy. It doesn't FIX the problem, but it improves it to some degree."
A major component of the underground economy has to do with illegal immigrants. These people are not now paying income taxes in many cases. They would start paying taxes at the checkout counter and, because they would not be receiving the rebates that legal Americans are entitled to, would actually be paying a higher effective rate.