[RobFromGa]

Here is my thoughts from a different thread re the Underground Economy:

Of course the illegal economy contribution is already included in the revenue neutral calulations, pigdog, you REALLY don't understand this plan very well considering how long you have been harping on it.

The Revenue Neutral calculations basically added up all the retail sales and services that would be taxable under the NRST, and divide them into the amount of government income that needs to be generated to replace the income and payroll and corporate taxes that would be lost. That yields the required FairTax rate to generate the same ("neutral") income.

The way they propose to start taxing the illegal underground economy is to start applying the taxes to the legal transactions that the drug dealers are making right NOW. Since they can't nail them at the income tax level they think it will be easier to nail people who are not reporting retail sales because it requires collusion between the illegal drug dealer and the honest retailers.

They do not expect to make what is now an illegal transaction, become suddenly legal by adding an additional 30% FairTax to the transaction.

ancient_geezer do you agree with this statement above?

In fact, once the wage and price issues are squared away, my biggest remaining concern with the FairTax is that the 30% tax rate will drive many retail transactions underground because of the very high tax rate, that is the big unknown. I am esp worried about this as it relates to personal services- which are transacted individual-to-individual.

[Dimples]

I agree with your views. Illegal transactions will not be taxed; dollars flowing out of the underground are only taxed once (as they are today before they flow in;) dollars that flow underground are not taxed at all.

If aftertax income remains the same (as we believe it will) and aftertax prices remain the same (prices drop but tax is added back in at retail), there is no aggregate change in purchasing behavior. However, the ability to discount purchases by 30% (by not collecting or paying Sales Tax) is a powerful incentive to go underground for both the seller and the buyer. On an economy-wide basis, more choices are made about consumption based on price by more individuals than are made about jobs/income.

It seems there will be much more incentive and much more opportunity to cheat.