Personally, I've never bought the "underground economy" argument for the reasons you point out. The only thing I will say is that under an NRST, "undocumented workers" (i.e., illegal immigrants) will pay the full NRST rate on their purchases as everyone else, but will not be eligible for the FCA. This means that the illegals' effective tax rate equals their marginal tax rate, whereas the typical legal resident or citizen's effective tax rate is significantly lower than the marginal rate due to the FCA.
Dear kevkrom,
"Personally, I've never bought the 'underground economy' argument for the reasons you point out."
Well if you and I are right, then that doesn't bode well for the NRST, in that my understanding is the 30% rate is kept that low in part by assuming that the great majority of the underground economy will get sucked into the tax system.
As it is, the 30% sales tax rate looks to me like a significant burden on consumption (and the general rule of thumb is if you tax something heavily, you get less of it, and less consumption usually translates to "recession"). As well, included with state sales taxes (my own state of Maryland charges 5% - so that's a total rate of 35%), the taxation rates look to me to be so high, even at the current proposed levels, that they are virtual invitations to avoidance and evasion.
But if we're not capturing nearly all the underground economy, then the rate will have to exceed even 30%.
Think of the Laffer Curve, and consider that it might also describe consumption tax rates and levels of consumption tax revenues. I suspect we're already into the right side of the Laffer Curve, as it might apply to consumption. A higher rate takes us further down the road of the right side of the curve.
sitetest
undocumented workers" (i.e., illegal immigrants) will pay the full NRST rate on their purchases as everyone else, but will not be eligible for the FCA.Wooo, eligibility, that'll stop'em.
They aren't "eligible" to be in the country working either, did that stop them? Not being eligible and not receiving are'nt the same.
The only thing I will say is that under an NRST, "undocumented workers" (i.e., illegal immigrants) will pay the full NRST rate on their purchases as everyone else, but will not be eligible for the FCA. This means that the illegals' effective tax rate equals their marginal tax rate, whereas the typical legal resident or citizen's effective tax rate is significantly lower than the marginal rate due to the FCA.An honest question. What do you think would happen if a plan like Bush's "guest workers" idea were implemented? Would they get the FCA?