I'm talking about transactions that are now IN the PCE (and counted IN the FairTax base) but will shift OUT of the PCE because of the FairTax.
As an example of a Legal Avoidance transaction now in the PCE that will disappear from the PCE under the FairTax:
Under the income tax, an individual may choose to donate a used car to a charity. He likes the idea of getting a tax break and he wants a newer car. The value of the used car is used to offset taxable income and thereby avoid paying income tax on that amount. After donation, the individual buys a new car (the new car purchase is in the PCE under the income tax system.)Under the FairTax, donating the used car to the charity is not tax advantaged, AND, the value of his used car rises in response to market forces driving up the value of used, untaxed goods. Instead of donating the car, he sell the car, makes a cash donation, equal to the value his donated car would have realized to the charity under the income tax system then chooses to purchase a newer, but still used, car (though he could afford a new car, he still likes the idea of avoiding the payment of tax; he's exercising his voluntary choice not to pay tax.) He invests the money left over in now tax-free investments (all the rage now.) This purchase replaces a purchase that would have been in the PCE under the Income Tax system.
As an example of ILLEGAL evasion that will alter the PCE under the FairTax:
Under the income tax system, a person uses his under-the-table wages to purchase a new laptop computer. The transaction is counted in the PCE.Under the FairTax, that person asks his employer to purchase the laptop for him and pays the employer's cost. Since the employer used to pay him under the table anyway, he's quite confortable with idea; after all, who's going to inventory his equipment? and even if they do, he'll just say the laptop is for business use. That purchase shifts OUT of the PCE.
The AFFT Tax base calculations MAKE NO ALLOWANCE FOR THESE SHIFTs OF PURCHASING BEHAVIOR, despite what ancient_geezer claims.
The AFFT claim of avoidance and evasion staying the same incorrectly assumes that 100% of avoidance and evasion of reported taxable income is reflected directly by the current PCE ... it is not. Common sense will tell you that currently untaxed (even uncounted) income does indeed purchase legitimate goods and services now counted in the PCE. The incentive to avoid and evade income taxes are not present in current consumption; the incentive is to minimize reported taxable income then freely consume.
Under the FairTax, the incentive to avoid and evade shift from a focus on income to a focus on consumption. This shift will NECESSIARILY cause the PCE to change as formerly counted, taxable purchases, are avoided or evaded in order to avoid or evade paying tax.
Claims that the PCE already accounts for this are are entirely unfounded and wholly an invention of the FairTax mind.
Under the income tax system, a person uses his under-the-table wages to purchase a new laptop computer. The transaction is counted in the PCE.
Tax revenues are not generated under the evasion of the income tax lowering the numerator of the rate required for revenue neutrality.
Under the FairTax the new lap top is taxed and thus is legitimately counted for the FairTax accounting towards revenue neutrality of a number less than what would exist were the income tax not evaded.
In the fair tax tax revenue would be collected on purchase of the laptop offsetting the tax not collected in income taxes, but counted in PCE where the tax would be collected on the purchase. The situation is a wash.
You are overlooking the fact there is two sides to the tax ledger, revenues collected vs tax base that combine to make a rate commensurate with a given level of revenues targeted.
Under the FairTax, that person asks his employer to purchase the laptop for him and pays the employer's cost. Since the employer used to pay him under the table anyway, he's quite confortable with idea; after all, who's going to inventory his equipment? and even if they do, he'll just say the laptop is for business use. That purchase shifts OUT of the PCE.
Under the the income tax that laptop is purchased as a business expense of the employer and not declared as part of PCE thus counted exactly the same as the situation that arises with the retail sales tax of the FairTax, PCE (the denominator) is reduced thus evasion is properly accounted for as equivalent in both tax systems.
Your examples merely demonstrate the point that similar business tax fraud occurs in both systems and the rates based on revenue collected vs PCE reflect the assumptions of the same amount of tax evasion in each case.
The AFFT Tax base calculations MAKE NO ALLOWANCE FOR THESE SHIFTs OF PURCHASING BEHAVIOR, despite what ancient_geezer claims.
The allowence is inherent in the NIPA data series used, shifts in behaviour are in method of the perpetrator and action to effectuate the evasion but not overall amounts and are reflected in the numerator (tax revenues collected) and the tax base denominator of PCE, rendering a rate commensurate with the static methodologies in current use by OMB & Treasury.
Under the FairTax, the incentive to avoid and evade shift from a focus on income to a focus on consumption. Under the FairTax, the incentive to avoid and evade shift from a focus on income to a focus on consumption. This shift will NECESSIARILY cause the PCE to change as formerly counted, taxable purchases, are avoided or evaded in order to avoid or evade paying tax.
The shifts in behaviour merely reflect methodology of avoidence and are reflected in both denominator and numerator. The assumption of similar rates of evasions yield the appropriate rate for use in the FairTax rate required to achieve revenue neutrality.