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Let's take a more detailed look at your example. Indeed, there are embedded taxes in the $5,000 watch cost and let's say for the purposes of your example (for which BTW we will use a 25% tax inclusive rate) we simplify things to define that $1,000 are these embedded cascading taxes.

We now have Joe Pimp buying a $4,000 and paying $5,000 with a small part of the $1,000 cascading increase representing income tax paid by the seller. Let's be generous and say the amount that actually represents the tax collected is $400 though I would think it would be quite a bit less.

The other $600 goes not to the government but to the cost of goods of the retailer in obtaining the watch (which in turn would have cascaded taxes embedded but these are not part of the issue in the example). Joe P. has now unwittingly helped our tax revenues to the tune of $400.

Now under the FairTax let's say that the $4,000 watch (which now has $0 cascaded into the cost of goods) is purchased by Joe. This means a 20% reduction in the price to the retailer and presumably a corresponding reduction to Joe.

At a 25% tax inclusive rate, Joe's $4,000 purchase would have a sales tax collected by the seller of $1,000 who then passes on as tax revenue not the original $400 but $1.000 - a significant increase. Most likely the actual increase would be much greater.

The FairTax, then, does both reduce the price and capture more tax revenue from guys like Joe P. and his cocaine cash. He should be tickled since the watch is much cheaper. The gov't. should be tickled since they get more from him and you and I should be tickled also since Joe is now helping reduce our tax burden.

I thought you said a more detailed look.

This means a 20% reduction in the price to the retailer and presumably a corresponding reduction to Joe.

Why would, more accurately, why should the retailer reduce his price when he knows there's a 30% tax waiting to be paid at the other end of any of his gains?

The other $600 goes not to the government but to the cost of goods of the retailer in obtaining the watch (which in turn would have cascaded taxes embedded but these are not part of the issue in the example).

I really have no idea what you are talking about or are trying to explain. Cascading is the accumulation of taxes at each level. If there is $1000 of embedded taxes, there certainly is $1000 of taxes actually going to the government through various income and payroll taxes. These so-called cost of obtaining the watch have nothing what so ever to do with anything.