[Your Nightmare]

How can you say that? Joe Pimp buys a $5,000 watch with cocaine cash and has to pay a sales tax on it? He never had to before. Clue me in.

Let me try and explain.

Under an income tax, the cocaine user (a criminal, also, remember) makes $6,000 pays $1,000 in income taxes and spends the remaining $5,000 on cocaine. The government gets $1,000. One criminal is taxed (the user) and the other isn't (the dealer).

Under a NRST, the cocaine user makes $6,000 and spends it on cocaine (the dealer has to raise prices like everyone else or his "real" profits decline). The dealer takes that $6,000 and buys a $5,000 Rolex and pays a $1,000 sales tax on top of that. The government makes $1,000. One criminal is taxed (the dealer) and the other isn't (the user).

There is no increase in revenues to the government.

[groanup]

Your example assumes that the buyer would not have saved the money he otherwise used to buy cocaine. It assumes he would have spent it on something else. You can't make that assumption in every case.

[pigdog]

Joe P. was a coke dealer, not a user in the earlier example.

In the example you cite you're a making the assumption that Joe User reports and pays taxes on his income including that he uses for the drug purchase. It's more likey that income goes unreported and/or is removed from the tax base since the dollar amounts involved in serious drug use are high and Joe U. should be smart enough to not want to have his returned flagged by the IRS (which DOES have the power to do that sort of thing) since that would ensnare him in the never-ending-hell of the IRS and its tender mercies.

In other words, I doubt that the IRS will ever see the $1,000 in tax you claim they receive. Probably more likely, I think, is that they receive little or none which makes the example not meaningful since no one would be taxed.