Absolutely they cheat the system. I just don't get how you see it as ANY different under the fair tax. There is ZERO difference. There is NO net gain. Let's say Spitzer pays a hooker $5000. Under the income tax, the hooker does not pay SS tax or Income tax. Under the fairtax, the hooker does not remit 23% of that gross payment for her services. Under BOTH systems the hooker keeps over $1000 that rightfully should be sent to the government. NO DIFFERENT, except the semantics which you twist it with.
That's fine. I'm not saying otherwise.
I'm saying the portion of total taxes coming from criminals and illegals will be more under the nrst than the portion currently collected under the income tax.
If currently legals represent 80% of population but pay 98% of taxes, under the nrst - for example - legals will represent 80% of the population but pay 80% of taxes.
The total paid by illegals will increase and the total paid by legals will decline.
To carry on with your scenario, the hooker keeps over $1000 that rightfully should be sent to the government. Under the current system that is the end of her story. She has tax free loot for her trouble. But, after the FairTax is enacted, when your hooker uses her illegal loot to purchase 600 thread count linen sheets at Dillards and a darling pair of Jimmy Choo's, 23%/30% percent Federal Tax is included in the price she pays.
For the first time, she and all of the other members of the vast shadow culture of criminals and other underground individuals will pay tax when they make retail purchases.
Their income was untouchable because it was outside the law but their consumption is not untouchable because they, or their family will make purchases. After all, a criminal makes money illegally so he can spend it. We tax them on the flip-side!