Does anybody really think that those same households that now employ underground nannies, housecleaners and gardeners and don't NOW pay FICA taxes, or withhold income tax from these employees' pay are going to become "in the game" taxable employers and pay the required tax under the FairTax scheme???
I didn't think so.
Again, this example illustrates how the tax base doesn't expand, but merely shifts.
Not that it makes a big difference in terms of whether prices will drop, but your assumption on the nanny is premature. I see less incentive to be illegal.
It would depend on the relative rewards vs. penalty. A nanny today generally works under the fiction that they are an independent contractor. As such, to be legal they would have to report their income and pay self-employment taxes of 15.3%, plus income taxes, plus FUTA, etc. They get the benefit of getting credits within the SS system. That is a poor reward compared to the taxes owed.
Under the FairTax, they must be registered with SS and report their wages to get credits in the SS system -- but they do not have as high a penalty in taxes owed.
Supposing a nanny is working for $2000/mo, she would owe $306 self-employment tax and $200 income tax. She takes home $1494. Or she keeps off the books and takes home $2000. It cost the household she works for $3000 income to pay her $2000. Legal, govt gets $1506 taxes. Illegal, govt gets $1000 taxes -- but also has no future SS obligation to her. It costs her $506 buying power to be legal.
Under the FairTax, she charges $2400/mo gross, of which $552 is FairTax and she takes home $1848 and gets the prebate of $190 for a total $2038. Or she keeps off the books and takes home all $2400 with no prebate. Either way, it only cost the household $2400 income. So the household is $600 ahead. Legal, govt gets $1159. Illegal, govt gets $690. Her buying power is 77% of what she spends, so legal is $1569 and illegal $1848.
Under the FairTax it costs her $279 to gain the benefit of credits in the SS system and the psychological benefit of being completely legal. Under the current system, it would have cost her $506 for those benefits. The household is ahead $600 under the FairTax compared to the current system. Even if she insisted on charging more so her net buying power was the same as illegal, the household is still ahead $321.
That seems like it would offer less incentive to be illegal than under the current system. Am I missing something ?